Recent Buy: September 4th, 2014

I recently put more capital to work by initiating a position in International Business Machines (IBM).  I’m now invested in 16 businesses.  It’s also my first technology stock, and I’m happy to diversify into a new sector.  I bought 8 shares at a price of $191.47 each with a $6.95 commision for a total cost of $1538.71.  The trailing P/E is 12 and the forward P/E is around 9.7.  I got in at a yield of 2.3% and the purchase adds $35.20 to my annual forward dividends for a new 12 month total of $1,024.20.  It feels great to break that 1k barrier in forward income. That money will go right back into more shares, and I’m excited to see the compounding take off in bigger amounts.

IBM is a love or hate stock and gets criticized for it’s flat revenue, high debt, and lack of innovation.  I love the low payout ratio, stock buybacks, 5 year average dividend growth rate of 14.33%, and 19 years of dividend increases. I got in above the 5 year average yield of 1.90%, but at a higher price than we’ve seen recently.  This was a testament to my recent commitment to not worry about the exact price as long as the valuation make sense.  I believe IBM is still quite undervalued at the price I paid, even though it was as low as $180 a share just a month ago.  I have no way of knowing if the price will go up or down, but I do love the company in the long term.

I’ve enjoyed a few articles on IBM recently that helped with my investment:

Jason at Dividend Mantra posted an excellent recap on Daily Trade Alert of Warren Buffett’s portfolio moves in the second quarter, and he was buying a lot of IBM shares.

Chuck Carnivale posted a great bullish article on Seeking Alpha called “I Feel Like A Thief Buying IBM At Today’s Low Valuation”

As a salute to Chuck, I’ll also include a recent fast graph of IBM:

fastgraph_september_ibm

fastgraph_september_ibm2

fastgraph_september_ibm3

fastgraph_september_ibm4

Do you think IBM is too pricey and risky?  What’s on your watchlist?

My Dividend Growth

http://www.mydividendgrowth.com

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16 thoughts on “Recent Buy: September 4th, 2014
  1. Tom Roberts

    Good Buy. I’m also a great fan of IBM. They have a strict focus on earnings per share growth and investors like that. I love several stocks from the old technology area. Cisco, Apple, Oracle and some more. Do you like to buy other companies from the sector too?

     
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    1. My Dividend Growth

      Tom,

      Very nice to hear from someone with so much experience, I’ve been enjoying your site for a long while now. I also like a lot of the old tech names and would add MSFT to that list. I think Apple and IBM are currently the most attractively valued. Oracle was one of my first purchases, but I sold before I had a solid strategy. Lesson learned and I’m now completely set on the long term. I’ll likely double down on IBM before starting a new position in the sector unless we see some much needed lower prices. It’s a good problem to have when there are so many great companies to choose from for my small portfolio. I hope you have a fantastic week ahead.

      Best wishes,
      Ryan

       
      Reply
  2. Dividend Growth Journey

    Congrats on the purchase. IBM is a tech giant that has been reinventing itself the last few years going from a hardware company to a services company. It has shed its hardware business over the years to Lenovo and this helps IBM to focus on the higher margin services sector. The company is a giant and hence has slow growth. It is a great company to be invested in over the long term. I hold IBM as part of Tech ETF (XLK), but haven’t initiated position in it directly primarily due to the fact that my portfolio is already high on technology (AAPL, HPQ, XLK and GOOG) – even though each company mentioned above is in a different sector of technology. I plan to look at IBM more closely when I am ready to invest in tech sector in a while.

    DGJ

     
    Reply
    1. My Dividend Growth

      DGJ,

      Thanks a ton, I’m with you seeing some very positive signs from IBM. I think it’s one of those undervalued hidden gems that’s hiding in plain sight right now, like AFL and DE. You’ve got some serious tech exposure with some real nice companies. XLK is a very interesting ETF and it looks like it’s been very kind to you so far. You get some great diversity from it, and that’s one thing my small portfolio still lacks. How fast I should diversify is a never ending debate for me, but as long as my income remains stable I know I’ll get there eventually. Always nice to have you check in with a great comment!

      All my best,
      Ryan

       
      Reply
  3. Dividend Mantra

    Ryan,

    Looks like a solid buy, in my opinion. I probably would have already doubled or tripled my position by now, but I’d like to keep IBM a smaller position only because of my leeriness on tech. However, the value is obviously there. And the graph above does a great job of visualizing that in one swoop. 🙂

    Glad to have you on board as a fellow shareholder!

    Best wishes.

     
    Reply
    1. My Dividend Growth

      Jason,

      Glad to own part of this business with you, I’m in good company 🙂 I saw that you’ve been on board with these stagnant prices for just over a year now and I’m with you and feel dubious about this sector because things can change so fast. I find myself feeling this way about oil and tobacco stocks too, however like you pointed out, sometimes the valuation just makes sense despite all that. IBM is clearly in that position currently and I’m hoping most of the negatives are already priced in while management continues to figure out how to get growing strongly again. There seems to be some promising developments. Meanwhile, I’ll collect those rising dividends right along with you. Thank you very much for taking the time to read and leave a comment!

      All my best,
      Ryan

       
      Reply
  4. Special Agent Dividend

    Great job on breaking that $1000 milestone!! That’s a fantastic milestone and only the beginning for you. I think IBM is a solid company and one that will pay you back as an owner for years to come. I’d like to invest in the company at some point, but as a rookie dividend growth investor, I’m trying to build base positions in the 13 companies I chose to start with. I went with AAPL and INTC as my tech stocks for the beginning.

     
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    1. My Dividend Growth

      Special Agent Dividend,

      Thanks a ton, I couldn’t be happier with my forward dividends milestone. I’m lucky to be saving so much income lately and I’m seeing some serious results. I’m glad to discover your blog so I can cheer you on. I’m a rookie myself. I had less than 5k in my portfolio in December and am always learning as I go. I can’t even explain how fun building the portfolio has been and the endless support from other people in the community and I’m so excited for you to experience that. I feel like AAPL is currently undervalued and a great pick. INTC isn’t my sort of investment now that it hasn’t raised the dividend since 2012, I look for a raise every year. It has a great yield though, and they could decide to raise it again at some point. Your portfolio is looking real nice so far, keep up those contributions and you’ll be set!

      Best,
      Ryan

       
      Reply
    1. My Dividend Growth

      Henry,

      I totally agree and love fast graphs for that reason. You can pretty much see valuation instantly to find a bunch of great candidates for further research. Appreciate you welcoming me to the club, I’m happy to be a member 😉

      All my best,
      Ryan

       
      Reply
  5. Tawcan

    A solid buy! IBM has done a lot over the years to make sure the company stays competitive. Great management and great innovative products. I think IBM is a great buy as a defensive core position.

     
    Reply
    1. My Dividend Growth

      Support like you’ve shown is always reassuring after a purchase, I thank you for it! I’ll be curious to see if you decide to initiate a position yourself at some point down the road, I find the current valuation to be quite compelling.

      Wishing you the best!
      Ryan

       
      Reply
  6. My Dividend Pipeline

    MDG,

    IBM will make for a great long term investment. I view it as an equal with JNJ, KO, PG, and XOM. I also continue to like Microsoft within the tech sector, but IBM appears to be a better value at current levels.

    MDP

     
    Reply
    1. My Dividend Growth

      MDP,

      You own so many shares of this company! I’m glad to join you in my own small way 😉 IBM is for sure a core type investment for my portfolio, and in hindsight I should have jumped in much earlier. At least the valuation is still very attractive at these levels.

      Best wishes,
      Ryan

       
      Reply
  7. JC @ Passive-Income-Pursuit

    Looks like a good buy. IBM is one of the few tech companies I have a lot of confidence in to continue to grow the company and increase the dividend. The share buyback is absolutely massive. I wouldn’t mind adding some more IBM and I guess I’ll have to take a closer look at them again. Congrats on passing the $1k mark for forward dividends. That’s a huge accomplishment and what’s awesome is that’s essentially an extra purchase each year just from dividends. And then of course you get the dividends from that purchase as well. Keep up the good work!

     
    Reply
    1. My Dividend Growth

      JC,

      Thank you much! An extra purchase each year will help out so much in my line of work. I’d be very interested to read what you come up with when you take a closer look at IBM. I vote for another of your great SA articles. I also feel very comfortable with IBM as a core holding. I like what they’re doing with Watson for the healthcare industry too, I remember seeing him on Jeopardy! Hope all is well with you and that you’re having a nice weekend.

      Best,
      Ryan

       
      Reply

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