IBM – A REVIEW OF

THE DIVIDEND
POLICY.
 INTRODUCTION

• International Business Machines Corporation (IBM) is an American multinational information

technology company.

• IBM produces and sells computer hardware, middleware and software.

• It is a major research organization with the most patents generated in the U.S.

• IBM has continually shifted business operations by focusing on higher-value, more

profitable markets.

• IBM is one of the 30 companies included in the Dow Jones Industrial Average.

• IBM is the world’s largest employers with 380,000 employees.

DIVIDEND POLICY HISTORY OF
IBM
 WHAT IS DIVIDEND POLICY?

• Dividend policy is the policy a company uses to structure

its dividend payout to shareholders.
• Most companies view a dividend policy as an integral part
of the corporate strategy.
• Management must decide on the dividend amount, timing
and various other factors that influence dividend
payments.
 TYPES OF DIVIDEND POLICY

• Stable policy: the dividend given is fixed irrespective of the

revenue and the EPS

• Constant policy: the dividend given to the shareholders

varies with the revenue they generate.

• Residual policy: the dividends are paid after paying off all
the expenses to of the company.
 WHAT DIVIDEND POLICY DOES IBM
USE?

• IBM follows the residual dividend policy method

• IBM is investing heavily in growth areas like cloud computing, analytics,
and security.
• Due to its huge investments, the company is offering less dividends to
its shareholders and the proportion varies every year
• IBM's share buyback activity slowed in 2015, with $4.6 billion spent on
its own shares compared to over $10 billion spent in each of the
previous four years.
IBM'S QUARTERLY PAYOUT BY 7.7% TO
$1.40 PER SHARE
• IBM returned to revenue growth at the end of 2017, driven by a new mainframe and cloud
computing growth
• It's now approaching 6% after the latest sell-off, the highest yield since the company's
existential crisis in the 1990s.
 CLIENTELE EFFECT

• Change in company’s stock price-policy of the company

• Assumption – Stocks are bought based on policy
• Two sides:
• Income investors - Investment opportunities – High dividend
paying stocks
• Growth investors - Capital Gains – High Growth Companies
 CLIENTELE THEORY - IBM

IBM is high dividend paying company

Ranks among top 10

Income Investors invest more

Dividend yield increases

Stock price affects – slight change in policy

 CLIENTELE THEORY - IBM

• Dividend Yield, Dividend pay-out and Share price

• 1999 – 0.43% - $0.31 - $72.44 2009 – 0.22% - $1.43 - $64.41
• 2014 - 2.61% - $3.58 - $137.07 2018 – 4.17% - $5.90 - $141.29
• Primarily attracted Growth Investors
• Last 20 years its paying high dividend
• Due to high dividend, Growth investors sold their stocks
• Change in dividend policy affected the price
• Income investors hold stocks today
• Stock prices fluctuated due to change in dividend pay-out policy
 SIGNALLING THEORY

• Signalling theory states that a company’s announcements

are an indication of the company’s future prospects.

• A company could reduce dividend to indicate plans for

future investment, or buy back shares to show that it
believes the stock is undervalued
 TAKEOVER AND BUYBACK
DECLARATION : FUTURE?

• Red Hat Takeover – Estimated 34 Billion USD ( 20 Billion

USD Borrowed)
• IBM announces 4 billion dollar share buy back
• Implications for the future?
QUESTIONS….??????
 THANK YOU

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