IBM Boosts Dividend, Adds $15B to Buyback Fund

Shares of IBM powered higher Tuesday after the technology giant said it would pay a larger quarterly dividend to shareholders and move to buy back up to US$15 billion worth of its own stock.

IBM’s board of directors had voted to increase its quarterly cash dividend to 40 cents per share, a 33 percent increase over the 30 cents paid last quarter, the company stated. Big Blue said the latest move up means the company’s quarterly cash payouts to investors has doubled in the past two years and has increased 540 percent in just over a decade.

IBM said the latest payments — to be issued on June 9 to all shareholders of record as of May 10 — would mark the 366th consecutive quarter it has paid a dividend, dating back to 1916.

The dividends and a decision to boost its stock buyback program “underscore the strength of IBM’s business model and our strategy,” CEO Samuel Palmisano said.

Recent strategic moves have given the company “significant financial flexibility to use our capital to drive growth through investments in acquisitions and capital expenditures, and to increase returns to shareholders,” he added.

Blue’s Buyback

IBM shares made a run at the $100 level Tuesday in the wake of the news, rising more than 4 percent to $99.22.

Suggesting it feels the stock remains undervalued, IBM said its board agreed to spend up to $15 billion more to buy back its own shares. The new funds augment $1.4 billion already in place from an earlier buyback program.

IBM said it may repurchase shares on the open market or in private transactions, with the pace of purchases depending on market prices and other factors, though it expects to compete “a substantial portion” of the total buyback in the next few months.

By reducing the amount of stock outstanding, IBM may also be able to boost its per-share earning growth, which Big Blue says now may be as high as 12 to 14 percent for 2007, 1 to 3 points higher than previously estimated.

Riding High

IBM’s strong recent performance has helped boost optimism about the overall technology sector, because the company is now exposed to all parts of the technology business, with massive hardware, software and services divisions and with customers that include many of the world’s largest businesses.

Meanwhile, it is just one of several major high-tech outfits to promise large-scale stock buyback programs. Microsoft pledged last summer to devote some $16 billion worth of its massive cash reserves to buy its own stock, and Hewlett-Packard said around the same time that it would purchase up to $6 billion worth of its own shares.

More recently, struggling mobile handset maker Motorola — under pressure from activist investor Carl Icahn to return more of its cash to shareholders — said it would expand its own buyback plan to a total value of up to $7.5 billion.

Mixed Signals

Buybacks have long-term benefits for companies, boosting per-share profits, for instance. That can be especially important when expansion and profit growth slows, which may be starting to occur.

The dividend and buyback plans were disclosed a week after IBM posted an 8 percent jump in earnings for its first quarter, results that raised concern because growth in North America was just 1 percent.

“There are mixed signals about how much businesses are prepared to lay out for new technology initiatives,” Gartner analyst Martin Reynolds told the E-Commerce Times.

While recent deals such as an IT outsourcing agreement for one of India’s largest cell phone companies will help pick up the growth slack, IBM relies on high-margin engagements in the U.S. not only to boost services revenue but also to drive the rest of the business lines at the company, he added. “IBM thrives when its services unit is adding customers because that opens up new opportunities.”