IBM Keeps Spending Billions and Billions For Share Buybacks

Investing

Published: October 30, 2012 11:17 am

Last Updated: April 27, 2020 11:24 pm

International Business Machines Corporation (NYSE: IBM) has spent billion and billions of dollars already to repurchase shares of its common stock and to pay dividends. More news is out on that front and even more billions of dollars are going to be returned to shareholders.

The IT and hardware giant declared a regular quarterly cash dividend of $0.85 per common share, which will mark the third consecutive quarterly payout at that rate. The real news is that IBM also authorized another $5 billion in additional funds to be used for its share repurchase program. IBM said that the purchases can be made on the open market or in private transactions as it sees fit.

On the surface, a sum of $5 billion might not sound like much in a company that is worth close to $220 billion. What matters here is that this is in addition to the $6.7 billion or so which was remaining available for buybacks as of the end of September 2012. That generates some $11.7 billion for its stock repurchase program in total and that is actually about 5.3% of its outstanding shares. More importantly. IBM said again that it expects to request additional share repurchase authorization at the April 2013 board meeting.

IBM is now just about entirely under Virginia Rometty as Sam Palmisano has announced his full retirement now and turned the Chairman role over to her.

On the surface, this news release is one we would automatically say is very poorly timed. If a company wants to make its news stand out, it shouldn’t be doing it on days when the markets are closed. That being said, the intent here is obvious. IBM is aiming to fend off any further selling in the stock. The $11.7 billion or so has already been telegraphed as “intending to grow even further” in 2013.

IBM is not buying back so much stock that it is effectively sucking up its entire free float. It is, however, trying to show that the nearly 10% sell-off seen so far is enough.

IBM shares closed at $193.27 on Friday and the 52-week range is $177.06 to $211.79.

The question to ask ahead is another issue entirely. Will IBM finally announce a stock split so that it does not dominate the Dow Jones Industrial Average so much?

JON C. OGG

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