The Death of IBM

The death of IBM

If you were asked to invest in a company with declining revenue, collapsing earnings and a company that has pretty much abandoned next years earnings forecast, would you invest in it? No? What if I told that the board of directors has a solution to this problem – which is repeated attrition and buying its own stock. Still no? Welcome to the life of (and possibly the death of IBM?) one of the oldest and largest tech companies in the world – International Business Machines (IBM).

The Tech Sector

As someone working in the tech industry, I find IBM to be a dinosaur. They are stuck in the old ways and are too sluggish to move forward. And especially in an industry where things move fast, even if you stand still – you are considered moving backward. I have written in the past about companies dying and go through a life cycle just like individuals. Nothing really lasts forever. Could this be the beginning of the end of IBM?

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Recent Buy – Apple Inc (AAPL)

Apple

I initiated a very small starter position in Apple Inc (AAPL). This might come as a surprise for some of the dividend growth investors, but the company has changed a lot in the last couple of years.

Over the past couple of decades, the company has remained growth focused and has made a lot of money for investors and traders. But I, as a dividend growth investor, was not interested due to the lack of dividends – let alone the growth of dividends. Things started changing in the summer of 2012 when Apple declared that it will start paying out dividends. While this was seen as a shift from growth to value play for investors, some headed for the exit door and the stock suffered with a fall of over over 40% from its peak. However, over the course of last two years, it has become clear that the company is not stagnant and resting on old accords – the company still maintains the drive to innovate and push forward with new products and services.

Financials

Apple Financials

Recent Buy Decision

  • Apple has tremendous pace of innovation that continues to capture the imagination of the masses. New product launches keep coming such as new iPhones, iPads, iMacs, iWatch and launch of new services as well – such as Apple Pay. Other growth opportunities include Apple CarPlay, where the Apple ecosystem is deployed in the car console systems, where Apple has already signed up with a number of luxury and mid-tier car manufacturers.
  • They have been able to command higher prices and the customers are happy to pay for it. Moreover, the brand loyalty is spectacular with some reports claiming upto 90%.
  • Lots of new frontiers still exist for Apple to take a crack at – such as health, television, media etc.
  • Apple has come of age and has become a more mature company and the dividends have started flowing to shareholders. Apple is also becoming more shareholder friendly – even listening to activist investors like Carl Icahn and tweaking their buyback plans.
  • Apple having only started issuing dividends in 2012 started raising them out of the gate. The dividend grew by 15% in 2013 and 8% in 2014. The current payout ratio is a low 30% and considering the huge cash position that Apple holds (albeit overseas), increasing those dividends in the future should not be a problem.
  • The valuation is attractive with a low P/E of 15.7, PEG of 1.29 , the company is a proven cash machine. According to my analysis, the fair value is around $140, although investors like Icahn have claimed that the Apple stock is worth $200 last week.

Summary of the stock

  • Symbol: AAPL
  • Quote: $97.67
  • 52-week range: $70.51-$103.74
  • P/E: 15.78
  • Forward P/E: 13.34
  • Debt/Equity: 25.67
  • Yield: 1.88%

 

Chatter Around the World – 66

Chatter Around the World is a curated weekly update of articles related to economics, investing, dividends and personal finance. In these weekly updates, I also capture my blog updates and news related to my portfolio holdings.

Trade weighted US Dollar

5 more years to run for the US$ bull market?

New Blog Posts

Let’s dive into the links that caught my attention this week.

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Omega Healthcare (OHI) Dividend Increase

Omega Healthcare Investors Inc (OHI) announced that its quarterly dividend will be raised by 1.96% from $0.51 to $0.52 per share. This dividend increase is the company’s ninth consecutive quarterly increase. The new dividend is scheduled to be paid on Nov 17, 2014 to shareholders on record as of Oct 31, 2014. The new dividend rate results in an annualized yield of 5.56% based on today’s closing price.
My portfolio consists of 100 shares of Omega Healthcare, which increases my annual OHI dividends from $204 to $208.

Royal Bank of Canada (RY) Dividend Stock Analysis

Royal Bank of Canada

Royal Bank of Canada (NYSE:RY) is the largest financial institution in Canada, as measured by deposits, revenues and market cap. Royal Bank has operations in 52 countries including a strong presence in the Carribbean. The Big Five Canadian banks control most of Canada’s financial sector and are counted amongst the safest and strongest financial institutions.

Current Market: The current market in Canada is technically in correction mode, having fallen more than 10% from its all-time highs. A resource-rich economy, Canada is facing downward pressure from the oil and energy sector declines. In addition, the Canadian dollar (called the loonie) has of-sort become a petro-dollar, tracing the path of oil. The fall of oil has resulted in a fall in the Loonie and this will affect the financial statements of all internationally exposed corporations in the coming quarters, including the banks.

Read the full analysis here.