I'll apologize in advance because this IS going to come off as mean spirited.
But, really, 1561 words, to say what?
Tiresome, just tiresome.
I'm stilling thinking about slide #30 (Seq item #37 on the 8-K report that IBM filed on 26Feb2015 with the SEC).
If their goal, Longer-Term, is to return 75% to 85% of Free Cash Flow to shareholders, but only plan to buy back 2% to 3% of their shares per year, doesn't that imply a much higher payout ratio (albeit with much lower growth going forward after the first adjustment)?
This year's dividend increase should be interesting.
From IBM slide #30 (see: BARRON'S - "IBM Sees Lower Cash Flow Return Percentage ‘Longer Term’")
Last 5 Years : net share repurchase 6% per year.
Longer-term financial model : Continued dividend increases, 2% - 3% annual share reduction.
That doubles the projected number of years to take-over, from 50 to 100 years.
#years to full ownership = ln ( 7.79% / 100% ) / ln ( 1 - SRR )
SRR = annual net share reduction rate, dropping from ~5% to ~2.5%.
As always, just my opinion.
LOL, hc. I guess the substance behind that quote went completely over your head.
Hint, hint, hint - WEB does NOT want, or need, partners like you.
You own BRK, You call him Uncle. You probably spend every waking moment of your life thinking about him, what he is doing, and why he is doing it, you hang on his every word, and yet you criticize and second guess him every single day. EVERY SINGLE DAY!
IMO, it's time to make the big decision, either accept him for what he is, or sell and walk away. NOTHING you say or do will ever change him. As beach so elegantly put it, he is what he is.
hc, Do you remember what Buffett told his partners in 1956?
"All I want to do is hand in a scorecard when I come off the golf course. I don't want you following me around and watching me shank a three-iron on this hole and leave a putt short on the next."
« Y is ibm a great buy and xom a must sell ? »
JMO, because of the dramatic drop in the price of oil, most, if not all, of the oil companies will have to suspend their share repurchase programs indefinitely and focus instead on paying and raising (if they are a dividend aristocrat) their dividends. Who got hurt more? CVX, who bought back, on average 1.4% of its shares per year over the last four years, or XOM, who bought back, on average, 4.1% of its shares per year over the same time period? Dividends are "sticky", buy backs aren't. The faux growth part of the equation just got flushed down the drain. FD: I still own CVX.
I assure you, I have no financial interest whatsoever in IBM other than indirect participation via a general market index fund or ETF.
My interest was, and still is, strictly academic. Why has WEB apparently fixated on companies that do significant share repurchases? And how do these buybacks (and the faux growth that they create) distort valuations in general?
Personally, I would rather own a dying business that pays out 80% of FCFE and grows it by an honest 1% than one that pays out 30% and grows it by 6% (an honest 1% plus 5% in faux growth from buybacks), but then, that's me.
80% / (9% - 1%) = 30% / ( 9% - 1% - 5%)
« I would like to hear buffets (sic) new and updated opinion. »
What part of: I bought 9.21% more in the fourth quarter, don't you get?
He's just hastening the day he'll take it over completely.
Now it's up to Ginni to reduce (via buybacks) the share count by 5% each and every year.
« ... buying ibm at 7 xs BV is GOOD, buying brkb at 1.21 xsBV is BAD ... »
Well, you do know that IBM's ROE is an incredible 90.15%. Yep, give them a dollar in equity today and they'll return it a year from now with an additional 90 cents in earnings. Anyone that uses ROE and book value to value something is either naive or a fool, IMO.
hc, if I own IBM, it is indirectly, through VTI. I don't care about day-to-day fluctuations, so I don't pay attention to guidance. If I owned IBM directly, I would pay attention to one thing and one thing only, the dividend increase that is due each and every May. If the current dividend isn't raised to at least $1.17 per share per quarter (~6% over last year), I'd sell.
hc, you really just don't get it. IMO, WEB wants to own IBM, one of several future toll-booths to the cloud and, again IMO, buying back BRK at any price north of 1X book value per share is self destructive to book value per share.
So hc, this guy, like a lot of other folks, is railing against Buffett because HE doesn't understand what WEB is doing. LOL!
A dying business (and the vast majority of businesses are, in my opinion) at the right price making a sincere effort to return value to the shareholders before it passes on, can still be a good investment.
IBM trades for about 10X free cash flow to equity, pays out (dividend) about 30% of FCFE, and uses the bulk of the rest of FCFE to buyback shares, reducing the share count by about 5% per year. That should produce an annual total return of about 9.5% per year for the next fifty years, assuming that they can grow, organically, the business by a pathetic, additional 1% per year (less than inflation), ( 1 + 0.3 / 10 ) / ( 1 - 0.05 ) * ( 1 + 1% ) - 1. And when they run out of shares to buyback (other than BRK's, of course), BRK owns IBM.
Smart, very smart.
Apparently the market isn't showing DE the same love it has for IBM.
Don't hold me to these numbers, they're just sloppy, back of the envelope, jibber jabber.
IMO, it looks like:
IBM trades ~ 9.6X FCFE, pays a dividend of ~26% FCFE, and can throw ~54% of FCFE at buy backs. Note that 20% of FCFE is unaccounted for, that's for miscellaneous stuff, like tipping the C-Suite to make it happen. Est'd Real ATR = ( 1 + 0.26 / 9.6 ) / ( 1 - 0.54 / 9.6 ) - 1 = 8.8%.
DE trades ~ 17.5X FCFE, pays a dividend of ~46% FCFE, and can throw ~34% of FCFE at buy backs (net of the 20% that gets "lost"). Est'd Real ATR = ( 1 + 0.46 / 17.5 ) / ( 1 - 0.34 / 17.5 ) - 1 = 4.6%.
I'm assuming that neither company has any real organic growth going forward, that they are nothing more than a perpetual TIPS equivalent in an equity wrapper.
As always, just my opinion.
"The Board of Directors of The Coca-Cola Company today approved the Company's 53rd consecutive annual dividend increase, raising the quarterly dividend 8 percent from 30.5 cents to 33 cents per common share."
morning hc. I found that article on zh.
Shh, let's keep this on the QT. I've still got some traders that I want to liquidate over the next ten weeks.
$5,020.00, at the open, on 12Dec2007. The price to most recently reported book value was 194%.
Now write it down and don't ask again.
Not the quantitative answer I was hoping for, but, nevertheless, a very good answer.
Your implied ~12% ATR (see below) brought a smile to my face.
« ... he created probably $40 billion in value against $23 billion in cash and equity (net of debt) in 5 years. »
The net present value of those future cash flows should be discounted by at least 9%, preferably ~10%, to arrive at the "Buy Back Multiple", an Intrinsic Value per Book Value ratio of 120%.