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IBM’s Stock Buyback Program Adds $3 Billion

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Increase in IBM’s stock buyback program

Earlier in this series, we discussed the factors that weighed on the US dollar (UUP) and its potential impact on IBM and other technical players. On October 31, 2017, IBM (IBM) announced the addition of another $3.0 billion to its stock buyback program.

In 3Q17, IBM held ~$11.5 billion in cash and marketable securities. Its total debt stood at ~$45.6 billion. In 3Q17, IBM generated GAAP[1. generally accepted accounting principles] CFO (cash flow from operations) and FCF (free cash flow) of $13.1 billion and $7.0 billion, respectively.

In 3Q17, IBM returned $2.3 billion through dividends and share repurchases to its shareholders. In September 2017, IBM had $1.5 billion remaining under its share repurchase authorization program. The recent $3.0 billion addition brings IBM’s total share buyback authorization to $4.5 billion.

The intensity of IBM’s share buyback spree can be gauged from the sharp decline in its outstanding shares. In 1997, IBM had 1.9 billion shares outstanding. It had ~933.0 million shares outstanding on September 30, 2017—less than half of what it had 20 years ago.

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Share buybacks are key to the technology sector

Share buybacks reduce the number of shares outstanding, thereby increasing its EPS (earnings per share). They hold special significance for companies like IBM in the technology sector that are finding it difficult to report top-line growth.

Plus, 3Q17 marked 22 straight quarters of no revenue growth for IBM. Through its substantial dividend payments and share buybacks, IBM aims to retain its investors.

The chart above shows that 976 firms in the S&P 1500 Index (ITOT) paid dividends in 1Q17, a 34.0% increase from 2007, with the biggest gain in the IT (QQQ) sector.

IBM has recently been on an acquisition spree. Share buybacks are also preferred by IBM as they mask the dilutive impact of stock compensation programs and stock-based mergers and acquisitions.

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