Should Dividend Investors Buy IBM Stock Now?

  • You can now get the beaten down IBM stock for 9 times trailing year earnings.
  • IBM has a strategy, cloud, and the cash to buy a bigger place in the market, which it is doing.
  • Buy this stock for the dividend, sell when everyone else piles in.

A lot of people have given up on IBM (NYSE:IBM). But maybe it is time to get more constructive about it.

Eventually, even the dogs of the Dow get cheap enough to merit a sniff. On January 22 IBM stock started trade at about $122.

IBM stock chart

Source: IBM stock price chart by

The total market cap is $118 billion, a minnow in a technology sea now dominated by companies like Apple (NASDAQ:AAPL) ($538 billion), Microsoft (NASDAQ:MSFT) ($414 billion) and Alphabet Inc-A (NASDAQ:GOOGL) ($506 billion). Even Amazon (NASDAQ:AMZN) is now worth more than twice what IBM is by market cap, at $276 billion.

At this point IBM is selling for just 1.5 times revenues, while most technology companies sell for at least twice revenue, and 9 times last year’s earnings. It has a dividend yielding 4.23% at current prices. This is not an oil stock, and it’s not a dry hole. This is a real company with hundreds of thousands of employees around the world.

What makes IBM interesting now is how it is trying to buy its way out of trouble. It has picked up UStream to get into video, calling it a $105 billion opportunity. Its PwC unit picked up Outbox to drive cloud adoption in Europe. IBM is partnering with Computer Sciences (NYSE:CSC) on hybrid cloud, tapping government markets. As smaller cloud start-ups grow cash poor in the current environment IBM is ready to snap up some of the best.

This is the difference between IBM and companies such as Hewlett Packard Enterprises (NYSE:HPE) and Yahoo (NASDAQ:YHOO). IBM still has cash, over $7.6 billion as of the end of the year. It has a board willing to spend the cash, and a management that still has a strategy, namely the cloud. IBM is still profitable, and still brought in $4.46 billion of net income from $22 billion of revenue in the December quarter. Cloud is still an environment with lots of nimble start-ups in it, companies that can be bought and which can change the game.

IBM is falling, in part, because investors see how much it is spending and the impact this is having on its overall numbers. During 2015 this former cash flow monster brought in $16.8 billion of operating cash flow and sent all of it, and more, out the door, a net change in cash position of negative $2.24 billion. To dividend investors, this is bad. To growth investors, it’s not so bad. It shows IBM wants to be a growth company again.

There’s life in this old girl yet, and IBM stock is dirt cheap. If you’re a dividend investor with some risk appetite, consider buying this stock here.

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  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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