Big Blue Excites Investors With Green (IBM)

Investors in International Business Machines (IBM), aka “Big Blue,” are anything but “blue” this year. They should be ecstatic. As an old company and member of the Dow Jones Industrial Average, investors typically don’t view IBM as a high-flying tech stock. But at its core, IBM is a growing technology company. Big Blue is up about 44% year-to-date compared to a roughly 11% return by the Dow. Since IBM has been looking like this year’s gold climb, we decided to look at Big Blue and how much green may be left to harvest.

Few technology stocks pay dividends like IBM. To be sure, the yield is only 1.8%. But that’s a lot more than you can expect from Apple (AAPL) or Google (GOOG), and IBM is a much better value at just 11 times 2010 earnings. Best of all, IBM’s dividend is as reliable any. The company has paid it every year since 1916. The five-year dividend growth rate is close to 27%.

In addition to the dividend outlook, IBM is in a solid cash position. The company recently announced it will add $5 billion to a share repurchase program that now rests at $9.4 billion. Management isn’t stopping there. IBM said it plans to ask its board for more buyback cash next year. Returning value to shareholders is obviously a priority for IBM, which says it has sent $73 billion to investors in the last decade in the form of buybacks and dividends.

IBM finished the third quarter with $3.4 billion in free cash, up $1.3 billion from a year earlier. In a market that prizes strong balance sheets, IBM is an alluring investment. The company is well-positioned to weather slow economic growth because it helps customers reduce costs and operate more efficiently. At the same time, any economic rebound will provide a jolt to IBM’s top line.

IBM’s cash position and emphasis on creating shareholder value make it one of the safer bets for long-term investors. To go with a growth-like stock and a solid, conservative company, buy IBM.

Disclosure compliant with FTC 16 CFR Part 255 covering myself and my employer: No positions in any securities mentioned. No income, revenue, or other compensation received directly from, or on behalf of, the companies mentioned.