Tuesday, October 7, 2014

Recent buy: IBM

In my monthly recap I mentioned I had enough funds to open a new position. I have used these funds to purchase 7 shares of IBM for $190 per share. This purchase adds 25 to my annual forward dividends which now stands at €750.

My reasoning for this purchase is as follows:

  • IBM currently yields 2.3% and has increased the dividend 13% per year in the last five years.
  • The payout ratio is extremely low (25%) which leaves ample room for future dividend increases.
  • P/E-ratio is low (<12).
  • IBM is buying their own common stock hand over fists. Especially at current prices, this provides a floor to the stock price and leaves me with a bigger piece of the profit pie.
  • IBM shifted from begin a low margin hardware company to a higher margin supplier of business solutions, software and IT consulting.
  • Big Data, Cloud and Mobile are important trends. IBM is a key player in this segment and should be able to profit from these developments.
  • IBM estimates to earn $20 in operating earnings per share in 2015. The company currently earns $15-16 per share. This results in $18 billion in net income in 2013!

It's my 2nd purchase in the technology sector after Intel. I think IBM will complement my portfolio very well as I consider it to a stable and big player during one of the major societal developments in the next decade.

What do you think of this purchase?

1 comment:

  1. I'm long IBM and appreciate the fact that its transitioning into higher margin business. Stock buy-back makes IBM even more attractive. Good luck!