Recent Buy
Last week International Business Machines reported their quarterly earnings. While they ended up beating on EPS by $0.03, the top line growth in revenue fell short by about $1 billion. Mr. Market did not like this one bit and the share price dropped over 6.50%. For me this was just a chance to pick up some more shares and average down my cost basis. The lower share price fits right into IBM's management's plan to continually provide shareholder value both through rising dividends and share buybacks.
On Monday, I purchased 11 more shares of IBM for $173.75 each. After commission my cost basis for this lot is $174.47 per share. Based on the current annual dividend of $3.80 per share, my YOC for this lot is 2.18% and it will provide an extra $41.80 in annual dividends. Even better is that I got to lower my cost basis from the first lot of 10 shares that I had purchased back in late August. The overall per share cost basis for my position in IBM is lowered to $179.85 and the position now has a YOC of 2.11%. The new lot was purchased 6.08% lower than the first lot and lowered my cost basis by 3.18%. With the cost basis lowered to $179.85, the total position is in for over a 10.5% discount to my fair value calculation and just 3.0% above my target entry price.
My FI Portfolio's forward 12-month dividends now sit at $3,017.64 which is 86.22% of the way towards my goal of $3,500 by the end of 2013.
I've updated my Portfolio page to reflect this change.
On Monday, I purchased 11 more shares of IBM for $173.75 each. After commission my cost basis for this lot is $174.47 per share. Based on the current annual dividend of $3.80 per share, my YOC for this lot is 2.18% and it will provide an extra $41.80 in annual dividends. Even better is that I got to lower my cost basis from the first lot of 10 shares that I had purchased back in late August. The overall per share cost basis for my position in IBM is lowered to $179.85 and the position now has a YOC of 2.11%. The new lot was purchased 6.08% lower than the first lot and lowered my cost basis by 3.18%. With the cost basis lowered to $179.85, the total position is in for over a 10.5% discount to my fair value calculation and just 3.0% above my target entry price.
My FI Portfolio's forward 12-month dividends now sit at $3,017.64 which is 86.22% of the way towards my goal of $3,500 by the end of 2013.
I've updated my Portfolio page to reflect this change.
I hear you PIP. I investing in IBM at $175 last week. The lack of topline growth is somewhat concerning, but with the buyback and the dividend payout ratio it looked good to me. I think IBM's corporate culture is interesting. How many companies do you know of that have been able to reinvent themselves so many times over the decades.
ReplyDelete-Bryan
Bryan,
DeleteWhile the top line growth is concerning it's good to see that they can still grow shareholder value through the buyback and dividends. Eventually the revenue growth will come back. IBM's story is one of the truly amazing ones among corporate America.
Thanks for stopping by!
I like this purchase JC! I'd love to start a position at these prices but just don't have the capital for my DG portfolio at this moment! More opportunities will come, so I'm not worried, but it stinks to be sitting on the sideline!
ReplyDeletew2r,
DeleteAnytime you can pick up shares around the price that Buffet paid, I consider that a win. Plus since it let me average down the cost basis I think it's the right move to make. I know how you feel as I missed out on the latest debt ceiling/budget fiasco that dropped the markets down. By the time I got capital to my brokerage account it was too late as the bounce had already started.
Thanks for stopping by!
Looks like a good deal at this price, but I worry about a "plan" to increase shareholder value through increased dividends and share buybacks. Would much prefer a plan aimed at increased revenues, increased sales, increased margins, etc. IBM has a long term history of going through a near death experience every 20 years or so. Maybe one day it won't find a Lou Gerstner to rebuild it. I'll hold at these price levels and hope for better times but will not be adding more until there's evidence of a better plan than to increase dividends and buy back shares.
ReplyDeleteAnon,
DeleteI'm okay with the share buyback and dividends while they can implement a better growth strategy. There's still plenty of room to continue both of those and increasing the dividend while sorting out ways to increase revenue. Unless there's a big dip from here then I'll probably be leaving this position at current levels. When I made the first purchase the plan was to average down at least once so I took the opportunity to do just that.
Thanks for stopping by!
Pursuit,
ReplyDeleteI like this buy. I'm not sure if I'm going to buy more IBM or not. I've been circling around the name for the past few days, and now it has already bounced back a bit. I don't want any tech company to be more than maybe 2% or so of my portfolio, but IBM does look attractive here.
Anything else that's on your list right now? I'm just not seeing much that interests me. Some retailers look decent here (WMT, TGT).
Best wishes!
DM,
DeleteAs I mentioned above, the plan when I initiated my position was to average down the cost basis so near a 52 week low is a good place to do so. I also try and stay away from too large of positions in tech companies and in total they only make up about 7.5% of my portfolio. IBM is the largest at around 3.6% so I won't be adding more to IBM unless the share price drops to the low $160's which I don't expect to happen unless the markets are nosediving.
WMT and TGT are decent here. I think CSCO is pretty undervalued here but it's another tech company and the DG streak isn't that long so it's a bit riskier of a play. Unfortunately it looks like tech and big oil are the best values that are currently available and I need to avoid both. Tech because I'm not as confident in the consistency and big oil because I'm way overweight that sector. Everything I'd like to add is slightly over fair value at best when it comes to the consumer staples companies.
Thanks for stopping by!
Pursuit,
DeleteI agree with you 100% in regards to tech and energy (specifically Big Oil) representing the best values right now. And, like you, I can't buy too much of either because I'm in a similar situation with an already too high allocation to energy and being naturally inclined to avoid too much tech for risk reasons.
Best wishes!