This is a bad year for IBM stocks, but 2018 can be quite different. IBM (NYSE: IBM) was once the world’s most valuable company – back in the 1980s when tech giants dominated the mainframe and PC markets. Today, young tech giants such as Apple and Alphabet have eclipsed, but IBM remains a powerful player in the field of information technology. With IBM taking more than expected transitions to software and services companies, share prices have been declining in recent years and the company has earned investors a good reputation. It has raised its quarterly dividend payout ratio for 17 straight years and now yields as much as 3.9%.
Since mid-October, International Business Machines Corp. (NYSE: IBM) has shown some strength. But so far, it has not been enough to eliminate the damage. During 2017, IBM share price has dropped by about 7.5%. This is undoubtedly frustrating since tech companies bullish bull markets, including established carriers such as SAP SE (ADR) (NYSE: SAP) and Intel Corporation (NASDAQ: INTC). Remember, the hard work of IBM stocks is not a temporary matter. Over the past five years, the average rate of return has reached -2%!
Now, this bleak performance for obvious reasons. IBM has been slow to adopt new technologies like the cloud. There are several other underperforming businesses in the company, and in most cases people think IBM is one.
Hey, even legendary investor Warren Buffett has lost considerable faith in IBM shares. In November, he took one-third his position and left 37 million shares.
All of these seem to be serious for IBM stocks, right? Maybe so. But it is important to point out that the company has a history of dealing with disruptive changes. More importantly, CEO Ginni Rometty has been working hard to restructure the company. She took the difficult steps of cutting costs, slashing jobs and divesting businesses. The next generation of technology also has significant R & D investment.
The stock today’s dividend yield of 5.1%, giving investors a handsome return. Share prices have more than doubled in the past five years. The dividend payout rate has also risen steadily, doubling then and the recent growth rate has slowed down.
The result is really choppy. An illustrative indicator is that income has been steadily declining 22 percentage points.
The last quarter is a good indicator of this. First, the decline in revenue was only 0.4%. The mainframe division has gained strength due to its strong product line and strategic requirements categories, including Watson AI, analytics and emerging blockchain technologies.
But the real star is the cloud computing business, up 20% to 4.1 billion. This should not be a surprise. IBM has important advantages such as a reliable brand, a globalized infrastructure and thousands of talented engineers. The company’s cutting-edge AI and machine learning capabilities are also great for delivering better analytics and insight to clients.