Global Beta Advisors’ Company Profile of IBA (International Business Machines Corporation)

by Justin Lowry, President & CIO, Global Beta Advisors, LLC

Global Beta really likes IBM because in its recent quarterly earnings release for the period ending 03/31/21, it demonstrated the ability to reignite growth while also managing its balance sheet to not only sustain its dividend but grow it. We believe dividend paying stocks may see an increase in popularity, given how generally undervalued they have become from the COVID-19 economic recession coupled with the recent announcement by President Biden that the administration is proposing to double the capital gains tax rate. Although the details of the proposal are minimal to this point, there has been no mention that it would impact the tax rate for qualified dividends. Assuming that is the case, we believe that would be a substantial tailwind for dividend paying stocks.

computer power

IBM Revenue Growth by Industry

ibm revenue growth

Data from Factset Fundamental as of fiscal quarter end 03/31/21.

In its recent quarterly earnings release, IBM revealed its first quarterly year-over-year sales growth, albeit a modest 0.9%, for the first time in over a year. Revenue growth was led by their continued build-out of their cloud platform, which is extremely promising for a stock that had previously seen static to declining growth.

The growth the company achieved in the space was so astounding that the revenue from that industry has become more than twice what it was for the company, growing from roughly 7.5% of the company’s revenue to roughly 15.5% of the company’s revenue.

IBM Revenue Allocation by Industry

Data from Factset Fundamental as of fiscal quarter end 03/31/21.

Staying Committed to the Yield

Data from Factset Fundamental as of fiscal quarter end 05/07/21.

In its quarterly earnings release, IBM also announced that it will increase its quarterly dividend by 0.6% from $1.63 to $1.64, increasing the dividend yield, effective beginning with its May 2021 distribution, from 4.59% to 4.61% (yields based on annualized dividend payment as of 04/30/21). Although it is a modest increase, it was consistent with the company’s attestation during its quarterly earnings call that it is committed to shareholder return through quarterly dividend payments.

  • In addition to IBM demonstrably showing commitment to its dividend through raising it, the company also showed free cash flow of nearly $4.5 billion in its recent quarterly release for the period ending 03/31/21. We believe this figure not only demonstrates the necessary liquidity to sustain and grow its dividend but also serves as needed capital to continue to grow its cloud platform and enable IBM to better compete with the larger companies in the space.
  • As of 4/30, IBM’s price to sales is just 1.22 with an operating margin of nearly 20%, as of their most recent 03/31/21 quarterly financials. According to our calculations, IBM would need to see an average annualized revenue growth rate of roughly 8% over the next decade to justify its current valuation.  We believe this is attainable through the growing attraction to dividend-paying companies as well as IBM’s emergence in cloud computing.

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Global Beta Rising Stars ETF (GBGR) Risks:

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Growth Securities Risk. The Fund invests in growth securities, which may be more volatile than other types of investments, may perform differently than the market as a whole and may underperform when compared to securities with different investment parameters.

Momentum Securities Risk. Stocks that previously exhibited high momentum characteristics may not experience positive momentum or may experience more volatility than the market as a whole.

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Distributor: Compass Distributors

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