The annualized dividend per share is currently 3.80 (4 quarterly payments of 0.95). A quick, and admittedly superficial, review of the current Value Line report suggests that the future organic annual growth rate (growth from within, driven by absolute sales) might be about 3.3%. But by keeping the payout ratio low (to about 25%) IBM has the spare cash to buy back about 2.2% of its' shares per year. That boosts PER SHARE growth to about 5.6% per year, (1+3.3%) / (1-2.2%) = (1+5.6%). So, if your goal is to make a 7.5% return on your equity investments, then you might find IBM attractive, since it currently does trade near your IV: 3.80 / ( 7.5% - 5.6%) = 200. But if Mr. Market were to instantaneously change his mind and increase the discount rate by 1.0% (pushing it up to 8.5%) then you'd likely suffer a capital loss of about 34%, as IV falls from 200 to 131.
My preference would be to terminate the buyback and raise the payout ratio (to 60% - 70%) putting the annualized dividend per share at 10.00. That would increase IV to 238, 10.00 / (7.5% - 3.3%) and reduce the potential capital loss to 19% (as IV decreases from 238 to 192) if the discount rate were to suddenly increase by 1%.
Getting more of my initial investment back sooner, with a lower risk of capital loss, appeals to me.
Needless to say, thanks to the BODs' current dividend policy, I won't be buying IBM.
mornin jad, just wondering, do you pay state taxes ? How much would munger NET, AFTER TAX, on a dollar div from brk ? Do you think munger would rather have 65 cents CASH, NET, after tax on the dollar div or a dollar of brkb common ? bro, seriously, it aint that complex.
hc, you can choose to either forfeit some on your potential dividend to the government in taxes OR forfeit some your potential dividend to insiders cashing out (at a higher exit price relative to their exercise price) their "in the money" stock options. Either way, YOU ARE GOING TO LOSE. I'd rather forfeit to the government.
The forward dividend was about 3.00 per share per year when WEB bought at 170, so that puts his forward dividend yield at 1.76%. Adding that to the buyback supercharged 5.6% per year growth rate, suggests a total return of about 7.4% per year.
Optimistically (using a backwards extension of the NCF list that I gave you in one of my previous posts) his return might be 9.1% over the next several years.