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Wednesday, 09/17/2003

A DRIP for the Big Blue Investor
By Nich Sheldon
IBM - Int'l Business Mach. Corp

Company Description

International Business Machines Corporation (IBM) manufactures and sells computer services, hardware and software. The Company also provides financing services in support of its computer business. The Company's major operations comprise a Global Services segment; three hardware product segments (Enterprise Systems, Personal and Printing Systems, and Technology); a Software segment; a Global Financing segment; and an Enterprise Investments segment. IBM offers its products through its global sales and distribution organizations. The Company operates in more than 150 countries worldwide and derives more than half of its revenues from sales outside the United States. In October 2002, the Company completed the acquisition of PC Consulting, the global management consulting and technology services unit of Price, Water, House and Coopers. In December 2002, the Company sold most of its hard disk drive operations to Hitachi Ltd., a global electronics company.

[Source: Company Press Release]

Reasons to Invest:

This week's Drip of the Week is one that we have had our eye on for quite some time now. In regards to Price performance, analyst coverage, dividend yield, and earnings estimates International Business Machines Corporation (NYSE: IBM) - better known to most active traders as Big Blue - has the right ingredients for a solid dividend reinvestment plan.

Last week's Drip of the Week noted that us long term investors should try their best not to focus on current news (on any given stock) since we are investing in the long-run. However, there is one thing we would like to note about the news surrounding Big Blue.

IBM announced on Monday (September, 15th), that they are launching their RFID service. RFID stands for radio-frequency identification service. The RFID service uses specialized microchips attached to various IBM products, which transmit a unique code that includes information about its current location, where it came from and where it is going, when the product was purchased and how fresh it is (or rather, new it is). IBM believes this product will nearly eliminate theft, cut down on breakage and spare sore backs for warehouse loaders, who are currently lugging gigantic palettes of goods to scanners before sending them out.

Jan Walbridge, an RFID spokesperson, said that RFID is "leaps ahead of bar-code technology. Folks in this business estimate that there's (US)$40 billion of excess inventory in the product-goods and retail supply chain, and a tremendous amount of shrinkage -- lost products, stuff breaking, products being stolen. All that goes away with this technology."

This is great news for those men who have been lugging around inventory from one side of a warehouse to another. This technology should also help to keep a better eye on employee theft of products, as well as personal theft of IBM products. IBM merchandise will also be moved around less, which will help to keep rattling and shaking of products to a minimum. As of yet, IBM is the first company (at least from what news we have found covering the RFID technology) to move forth with this product. A paper products company, Kimberly Clark, announced that they have already signed on for IBM's unique RFID service. Wal-Mart is also investigating the potential for using RFID for their merchandise.

Some people are skeptical about the merchandise worrying that their IBM products will be intact with RFID and that someone somewhere will be able to track them down via the microchip. However, Walbridge said that IBM researchers are looking into incorporating privacy controls into its RFID line, which could include a possible automatic self-kill command inside the microchips.

Big Blue's financial summary is pretty impressive. Over the past two quarters - ending 06/30/03 - revenues rose 11% to 41.7 billion. Their net income from continuing operations spurted 80% higher, to $3.11 billion. IBM resources have said that these results reflect higher revenues from the Global Services and Software business segments, and decreased selling, general and administrative expenses.

In terms of price performance IBM has faired rather nicely in comparison with its Industry. Just 26 weeks ago, IBM was ranked in lower 25% of its industry. Yet, if one was to look into how they have been fairing in their industry over the past 13 weeks, they could easily assess that Big Blue has jumped from the lower 25 percent to the middle of the pack. What's more impressive than this, you might ask? Currently Big Blue is in the top 15 percent of its industry ranked at 86th out of 99 (remember 99 is the best).

IBM is expecting a dividend percentage growth rate of 7.27 over the next year, 7.87 over the next three years and 8.77 over the next five years. Currently IBM's annual dividend is $0.64 per share and they yield a 0.71% dividend.

At the bottom of our most recent Drip of the Week's we have been noting the brokerage recommendations for each of our spotlighted DRIP's. This week is no different, however we find it imperative to note that on Monday (September, 15th) UBS upgraded it's rating on IBM from Neutral to Buy. The Thursday before that (September, 11th) Smith Barney Citigroup, downgraded its coverage from In-line to Underperform. The odd thing about that is that that three days before that (September, 8th), CSFB upgraded their coverage from Neutral to Outperform. While these recommendations are generally tailored more to the active traders or short-term traders, we still like to keep an eye on what brokers are recommending for stocks that we are considering recommending to our readers.

The last thing that we are going to look at is IBM's earnings estimate. In comparison with last years Q3 earnings of 0.99, Big Blue is estimating 1.02 for this year. Twenty-one analysts are covering IBM's earnings estimate and the low estimate is 0.98, while the high is estimated at 1.07. Big Blue is estimating fourth quarter earnings at 1.51, which when compared to last years Q4 earnings of 1.34, is very attractive. More impressive is the fact that IBM is estimating annual earnings of 4.29 versus last years 3.95. We note this information for our readers so they can see where these DRIPs are headed in the future.

IBM Dividend reinvestment Program

To participate in the IBM Dividend Reinvestment Program option, you must be stockholder of record. This means you must have at least one share registered in your name on the records of IBM. Stock held in "street" or "nominee name" with a broker, bank or other financial institution is NOT eligible to participate in the IBM Dividend Reinvestment option. If you are not a registered owner and wish to enroll in the IBM Dividend Reinvestment Plan, please contact your broker for your initial purchase, have them issue a stock certificate registered in your name and contact Equiserve for an enrollment form.

EquiServe, First Chicago Trust Division
Mail Suite 4688
P.O. Box 2530
Jersey City, NJ 07303-2530
(201) 324-0218
(888) IBM-6700

An alternative way would be to buy shares directly through the IBM Investor Services Program. This program allows a convenient method of purchasing additional shares with a minimal investment fee. To request the IBM Dividend Reinvestment package contact above address For additional shareholder information contact IBM Stockholder relations ( located at the address below )

IBM Stockholder Relations
IBM Corporation
New Orchard Road
Armonk, NY 10504
(914) 499-7777

Until Next Week,
Nich Sheldon

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Broker Recommendations

Strong Buy         3
Buy               10
Hold               8
Sell               0
Strong Sell        1

Brokers Covering  22


DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment:  Yes

Min/Max Investment = $50-$250,000/year


Reinvestment Fees - 
Dividend investment fees: 2% to $3.00
Cash investment fees: $5.00
Auto reinvestment fees: $1.00


Transfer Agent:
Fist Chicago Trust
888-IBM-6700 (888-426-6700)
(See Note in write-up)


Corporate Headquarters:
One New Orchard Road
Armonk, NY 10504
Phone: (914) 499-1900
Fax: (914) 765-6021





 
 

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