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Eric Aceves
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Mr Aceves has been investing in the financial markets for over two decades and became involved in the financial services industry as a retail stockbroker in 2002 . His speciality was individual stocks, with an emphasis on superior service for his clients, which included being avaliable to speak... More
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  • IBM : Dividend Reinvestment or Treat Like Apple? 0 comments
    Jan 18, 2010 1:15 AM | about stocks: IBM, JNJ, MCD, AAPL, KO

    This is the last in a series of posts, talking about dividend reinvestment and the importance of timing the purchase to give an investor the most chance to succeed.

    The stock I will focus on in this post is IBM (NYSE:IBM) which is  one of the more successful stories of companies that have increased their annual payouts over the last decade.

    Like in my previous posts, I will use January,3 as my investment date and $5000.00 as my lump sum purchase.

    The above shows the stocks return since 1997, which included a 2-for-1 stock split as well as  one in1999. One thing that stands out immediately is the big drop from $16000.00 in value down to about $ 8000.00 in value in 2002. The investor would have been ahead overall, but it still would have been painful to experience.

    This purchase would have been made near the top of the market at $116.00 per share and an dividend that year of 0.51. While the stock did become stronger later on, the average annual return was about three percent thru the decade.

    This is a great example of how timing the purchase can be. This chart is based on a 2003 purchase of $81.00 per share and a dividend that was now paying 0.63 for 2003 and would eventualy  increase to $2.00 where it stands today.

    This purchase was made in 2008 before the financial meltdown being a few months away.

    I decided to add this chart showing a purchase on April,17,2008 near the top of the stock price. The closing price that day was 123.08. While that investment would have earned a positive return at this time, it was a huge drop of forty-percent before recovering.

    The final chart listed shows the purchase date of April,17,2009 after the market reached its bottom on March. The closing price that day was $101.27

    If IBM were to continue to increase its dividends like it has over the past decade , this stock is one that an investor should take a look at in terms of turning on the "dividend faucet."

    However, one needs to determine what would be an attractive entry point so this strategy would be the most efficient.

    For a moderate risk taker , there have been many opportunities over the past decade to trade the stock . While the beta is not as high as it is for Apple(NASDAQ:AAPL)
    there is still the potential for  gains over a longer stretch of time.

    In conclusion, after reviewing patterns for 3M (NYSE:MMM), McDonald's (NYSE:MCD), Johnson and Johnson(NYSE:JNJ) ,Coca-Cola (NYSE:KO), and IBM (IBM) it is  my opinion that if an investor does not to dollar cost average, but lump sum invest then timing of the purchase is critical to success.

    Disclosure: Long JNJ,MCD,

    Stocks: IBM, JNJ, MCD, AAPL, KO
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