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IBM: Darkest Before Dawn?

Summary

After the recent run up in price, IBM needed the mother of all earnings report to stay up.

It's still a good stock to own, but for the right reasons.

Upcoming dividend increase will push the yield beyond 4%.

IBM (NYSE:IBM) reported its Q1 results and while the headline numbers seemed alright, the stock took a beating and rightly so. The stock had run more than 25% in about two months, something that is very rare for old-age tech stocks like IBM.

Suddenly, articles and news items on Seeking Alpha are filled with comments like "Big blue is now small blue" and "Big blue is shrinking blue." It's easy to see that revenue is declining but EPS is holding up due to buybacks and cost cutting. Since IBM pays a hefty dividend, the buybacks have a double positive effect where the company can not only increase its EPS but also reduce the long-term dividend commitment to shareholders.

Speaking of dividends, IBM has been more than handily compensating investors for its slowing organic growth by giving out huge dividend increases. The table below shows the dividend increases for the last five years, with the average dividend growth rate [DGR] being almost...


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