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?
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!
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