Did IBM’s Dividend Policy Make It a ‘Dog of the Dow’?



IBM’s dividend yield attracts investors

Earlier in this series, we discussed how IBM (IBM) is a company to watch out for in 2017. Despite a consistent decline in revenue growth, IBM has increased its dividend payments for 21 straight years. Fiscal 3Q16 marked the 18th quarter of no revenue growth for IBM. However, its fiscal 3Q16 revenue of $19.2 billion was almost flat on a YoY (year-over-year) basis.

IBM is focused on dividends because many of its investors and shareholders view dividends as steady income—especially in the current scenario of increasing uncertainty and volatility. Oracle (ORCL) also follows this strategy.

IBM’s dividend yield could explain Warren Buffett’s and Berkshire Hathaway’s interest in IBM. With an 8.3% stake in IBM, Berkshire Hathaway is IBM’s largest shareholder.

IBM’s dividend strategy and yield make it one of Cornerstone Macro’s “Dogs of the Dow.” Cisco Systems (CSCO) also made the list. Its shares have gained 12% on YoY basis and provided a 3.4% dividend yield.
IBM cash offshore

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Share buybacks and dividends

The table above, released in March 2016, shows a list of the 20 non-disclosing companies with the biggest cash reserves. These 20 companies include leading technology players such as IBM, Alphabet (GOOG), and Cisco. Collectively, these 20 companies possess $1 trillion in unrepatriated foreign income—more than 50% of the total income held by 248 non-disclosing companies.

In late 2016, according to a Goldman Sachs (GS) report, companies are expected to spend a total of $2.6 trillion in cash in 2017, of which 48% will make its way to shareholders in the form of buybacks and dividends. The remaining~52% will be invested in growth in the form of research and development, capital expenditure, mergers, and acquisitions.


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