IBM Shows Why $230 Is A Reasonable Stock Target (IBM)

International Business Machines Corporation (NYSE: IBM) is trying to become a beast when it comes to dividends and share buybacks.  It was just yesterday that we demonstrated a report calling for 8% higher dividend payouts in 2012 from the DJIA component players, and IBM is the first of the DJIA components to prove the report’s point along with a larger commitment to share buybacks.

The dividend announcement this morning took the payout to $0.85 per common share per quarter, which is actually up by $0.10 or 13% from the prior $0.75 payout.  In short, IBM’s dividend hike is above that 8% or so average DJIA payment hike expected this year.  It is also IBM’s 17th year in a row that it has increased its quarterly cash dividend.  It also marks the ninth year in a row of double-digit percent increases.  The current dividend yield of 1.48% will rise to about 1.68%.

IBM has also authorized an additional $7 billion in funds for its stock repurchase program.  This $7 billion is in addition to approximately $5.7 billion remaining at the end of March from a prior authorization, implying that IBM actually has a total of $12.7 billion in total authorization under its stock repurchase program.

Where this gets interesting is that IBM is within a few percentage points of an all-time high and the company today noted that the company expects to request even more funds for share buybacks at the October 2012 board meeting. The company now claims to have reduced its share count by a third since the beginning of 2000.

Here is that $230 IBM Street-High Price Target call.  The old consensus target was closer to the current share price, but now that the earnings report came out the Thomson Reuters consensus price target objective is listed as $216.45.

IBM shares are up 1.6% and just under $202.00 with a 52-week range of $157.13 to $210.69.

JON C. OGG