IBM Boosts Dividend

The company looks to soothe investors with announced deals and a new buyback.
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Updated from 10:15 a.m.

IBM

(IBM) - Get Report

shares rose 2.1% to $76.22 Tuesday as the technology giant tried to soothe sour investors with news of an increased dividend and buyback program, an acquisition and two service contract renewals.

The company holds its annual shareholder meeting in Charleston, S.C., on Tuesday and the company's investors haven't had much to cheer about. Shares are down 22% this year, with most of the drop coming since the start of April. The stock plunged to a two-and-a-half-year low two weeks ago when

IBM badly missed its financial targets for the first quarter and predicted it would only hit its full-year earnings target by cutting costs.

IBM's results roiled the broader market as

investors feared widespread weakness. Following a subsequent spate of decent financial reports across the technology landscape, the problems with IBM's results appear to be IBM. Thus, the company needs to show investors it isn't sitting still and waiting for demand to return to lift its sagging stock.

Among the specifics announced Tuesday: it boosted its quarterly dividend by 2 cents to 20 cents a share and it earmarked $5 billion to buy back the company's stock. In addition, IBM took a big step into the health care services arena by purchasing

Healthlink

, a Houston-based health care consulting services firm that counts all 12 health care companies in the Fortune 500 as customers.

IBM also announced a five-year extension on a services contract with

National Account Service

, another health care services company, and a new seven-year services contract with

Pathmark Stores

(PTMK)

, a 142-store supermarket chain. The latter two announcements are important in that services were the weakest link in IBM's first-quarter financial report.

Even more changes could be on the way at Big Blue: Analyst Steve Fortuna with Prudential Equity Group forecasts job cuts in the range of 10,000 to 20,000 in the coming weeks. He also says CEO Sam Palmisano might be ready to announce a chief operating officer, which would be a new position at IBM.

Fortuna, who doesn't own the stock, says the job cuts could boost earnings in the second half of this year by 17 cents to 34 cents a share and in 2006 by 43 to 86 cents a share. He also says having on operating chief on hand "would be helpful in managing a company of IBM's size, complexity, and breadth, and would be viewed favorably by investors."

Another positive event on the horizon for IBM shareholders is the closing of IBM's sale of its PC business to China-based

Lenovo

. That deal is expected to close this quarter. Fortuna says it could be finalized by the end of this week.