This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

IBM Buyback Proves Warren Buffett's Math

NEW YORK ( TheStreet) -- International Business Machines (IBM - Get Report) shares are virtually unchanged from when Warren Buffett outlined in Berkshire Hathaway's (BRK.A) 2011 shareholder letter why he wouldn't mind a flat share price over five years.

IBM's announcement Tuesday that it will increase its quarterly dividend by 12% to 95 cents and authorize an additional $5 billion in share buybacks proves Buffett's opinion, even if the "Oracle of Omaha's" comments in the Feb. 25, 2012 shareholder letter raised some investor eyebrows.

Buffett's point to investors was share buybacks at a reasonable price can add significant value for long-term shareholders like Berkshire Hathaway, over time.

If IBM's shares were stagnant at around $200 a share, the company's authorization to repurchase up to $50 billion in shares would boost Berkshire's economic interest in "Big Blue" and give it an even more attractive claim on future earnings streams, Buffett said.

"I won't keep you in suspense. We should wish for IBM's stock price to languish throughout the five years" of the buyback, Buffett wrote in the 2011 shareholder letter.

As it turns out, Buffett was spot on in his expectations and analysis.

IBM shares closed Monday trading at just below $200 a share, roughly in-line with the $197.76 share price the company carried when Buffett published his 2011 annual letter on Feb. 25.

With an authorization to buy back about 25 million more shares as of Monday closing prices, IBM is now authorized to repurchase about $11.2 billion in shares, or approximately 5.6% of its overall share count.


"Since 2000, we have returned over $150 billion to shareholders in the form of dividends and share repurchases," Ginni Rometty, IBM chairman, president and chief executive officer, said in a Tuesday statement. "This enables the company to deliver value to our shareholders."

Given Buffett's comments on IBM, it's no surprise other large Berkshire investments such as Coca-Cola (KO - Get Report), Wells Fargo (WFC - Get Report) and American Express (AXP - Get Report) have all announced big increases to share buybacks, in recent months.

" S tock repurchases at Coca-Cola and American Express raised our percentage ownership. Our equity in Coca-Cola grew from 8.8% to 8.9% and our interest at American Express from 13.0% to 13.7%," Buffett wrote in his 2012 letter to shareholders.

Goldman Sachs (GS ), a new investment poised for Berkshire's portfolio, is among the biggest net buyer of shares in the entire banking sector.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AXP $77.32 -0.86%
BRK.B $141.57 -0.37%
GS $197.10 -0.45%
IBM $170.83 0.62%
KO $40.92 0.07%

Markets

DOW 18,081.11 +0.97 0.01%
S&P 500 2,112.41 -5.28 -0.25%
NASDAQ 5,062.5960 -29.4890 -0.58%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs