A History of Gifts
International Business Machines (NYSE:IBM) has a core tenet of shareholder returns. Its three major pillars of returns are dividends, repurchases, and reinvestment into the company's operations. The reinvestment is perhaps the most important, allowing IBM to put its cash flows to work by building the company's business segments. This creates more cash flow, which allows the company to return more cash to investors by other methods. Historically IBM has reinvested about 5-6% of revenues back into research and development to help keep the business keep growing. The company's strategic buybacks have helped IBM reduce its share count which boosts earnings per share a bit, a healthy accompaniment to organic earnings growth. And the final pillar of dividends, my favorite, is the most direct return to shareholders. This cash payment may be spent at the shareholder's discretion, to either purchase more shares or spend in other ways. And while IBM is repurchasing shares, the dividend payments will be a bit cheaper as the share count decreases. These three measures of returns work together, with each having its own importance.
