Did IBM Buy Red Hat At A Fair Price?

Summary

  • I believe that IBM is trading at a significant discount to its intrinsic value.
  • I’m very content to watch my dividend income grow and expect that to continue into the foreseeable future.
  • The Red Hat acquisition gives me confidence that fundamentals may actually grow again at some point in the future.
  • F.A.S.T. Graphs Analyze-Out-Loud video: Why I Believe IBM Paid a Fair Price for Red Hat.

Introduction

On October 23, 2015, I wrote an article titled “Retirees: I Did Not Buy IBM to Sell; It’s about the Dividend Income Stupid.” At the time I published the article, I was long International Business Machine (NYSE:IBM) and remain long today. With the article, I attempted to illustrate why I was including IBM in retirement portfolios. As the title so brashly stated, it was about the dividend income. Stated more directly, I was investing in IBM to augment the yield of my dividend growth portfolio based on the company’s quality and financial strength.

Moreover, I talked about the many varied investing strategies that investors could implement. Specific to my IBM investment, it’s important to emphasize that I intended to hold the company for many years to come, and still do. Therefore, I am not too concerned about short-term price volatility, simply because I have no intention of selling anyway. Additionally, I had, or have, no delusions about IBM generating significant short-term capital gains. In fact, I was confident that I would have to be patient on the capital appreciation front, but as I stated in the article:

A Growing Dividend Income Stream Was My Purpose for Investing In IBM

I have been and continue to be aggressively adding IBM into retirement portfolios. However, even upon my first foray into the company, I was never expecting substantial capital appreciation, at least over the short to intermediate term. Instead, my attitude about investing in this company was based solely on the opportunity to receive a safe, above-average and growing dividend yield. On that basis, IBM has proven to be a resounding success because, as I expected, IBM's dividend income has steadily increased.”

Here, I would also add that dividends are paid on the number of shares I own and not based on the

This article was written by

Chuck Carnevale profile picture
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Charles (Chuck) C. Carnevale is the creator of FAST Graphs. He is also Co-Founder of The Dividend Kings, along with Brad Thomas and Adam Galas (Dividend Sensei), offering a premium service on Seeking Alpha's Market Place. Chuck is also Co-Founder of an investment management firm. He has been working in the securities industry since 1970: he has been a partner with a private NYSE member firm, the President of a NASD firm, Vice President and Regional Marketing Director for a major AMEX listed company, and an Associate Vice President and Investment Consulting Services Coordinator for a major NYSE member firm. Prior to forming his own investment firm, he was a partner in a 30-year-old established registered investment advisory in Tampa, Florida. Chuck holds a Bachelor of Science in Economics and Finance from the University of Tampa. Chuck is a sought-after public speaker who is very passionate about spreading the critical message of prudence in money management. Chuck is a Veteran of the Vietnam War and was awarded both the Bronze Star and the Vietnam Honor Medal.


Disclosure: I am/we are long IBM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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