This mega-tech company is preparing to spin-off a subdivision. The current annual dividend yield is 5.72%, paid quarterly.
International Business Machines Corporation (IBM)
From Sound Advice
International Business Machines announced lackluster earnings in October which caused a dip in the stock price. However, the company also announced that it will be spinning off its managed infrastructure service business into a new company, called “NewCo”. This spinoff should prove to be a positive event for IBM over the longer term because getting rid of this legacy business will enable management to focus on its growing hybrid cloud business, spawned by the 2019 purchase of Red Hat.
IBM has been showing strong growth from its Cloud and Cognitive Software segment, offering technology consulting services to customers modernizing legacy cloud services to work on scalable public platforms, including IBM Cloud, Amazon AWS, Microsoft Azure, Google Cloud, and even Alibaba.
Management will also be better able to focus and promote its artificial intelligence (AI) platform, corner-stoned by its super-computer it calls “Watson”, which can “think” like a human.
The hybrid cloud market is expected to grow by at least 20% annually for the foreseeable future. Renewed growth prospects from IBM’s core sectors are enhanced by the spin-off, which should bode well over the longer term from today’s depressed price of the stock. The financial strength of the company makes the per share $6.52 dividend solid.
The spinoff won’t materialize until mid-to-late 2021. We will advise whether or not to sell your shares of NewCo when the time comes.
Gray Cardiff, Sound Advice, soundadvice-newsletter.com, 800-825-7007, October 30, 2020