IBM Likely to Announce Buyback

If you’re IBM, and your first-quarter earnings report shows you’re rolling in dough, what’s the best way to give some back to shareholders?

Most Wall Street analysts are betting the computer giant will today announce yet another big stock buyback--and probably just a token increase in the cash dividend it pays.

IBM shares, which rocketed last week after the company reported stronger-than-expected first-quarter earnings, leaped $10.13 to a record $209.88 on Monday on the New York Stock Exchange.

The company holds its annual meeting today in Miami, and analysts say IBM’s directors are likely to vote new authorization for a stock buyback.

IBM has bought back shares at a furious pace in recent years, reducing the number outstanding by one-fifth since 1994. Having the company in the market as a ready buyer can put additional upward pressure on the stock.

But only $700 million remains of the last board-authorized buyback total of $3.5 billion, which the company announced in October. Thus, another announcement is expected today.

“Buybacks are part of the long-term strategy,” said Steve Dube, who follows IBM for Wasserstein Perella Securities, and who rates the stock a “strong buy.”

What about the dividend? Like many companies, IBM has grown increasingly stingy with cash dividends in recent years. But shareholders don’t seem to mind.

Indeed, because dividends are fully taxable, while stock buybacks can help produce tax-favored capital gains in the share price over time, many investors encourage companies to use cash for buybacks rather than increasing dividends.

IBM slashed its dividend in 1993 and 1994 amid the worst of its earnings crisis. The company has since raised the annual dividend from 50 cents a share in 1995 to the current 88 cents a share, a 76% increase.

But the last hike, one year ago, was a mere 10% increase. Bill Milton, analyst at Brown Bros. Harriman, figures today’s dividend boost will be just 9%--a “symbolic gesture,” as he put it.

Meanwhile, shareholders are expected today to approve the company’s planned 2-for-1 stock split, to take effect May 26.

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Dwindling Share Base

IBM’s shares outstanding have tumbled amid aggressive stock repurchases by the company. Year-end share totals, in billions (all adjusted for upcoming 2-for-1 split):

2000*: 1.65 billion

* Numbers for 1999 and 2000 are estimates

Source: Value Line Investment Survey