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IBM absolutely needs the 5% dividend to survive, especially now. Without the dividend, IBM gets kicked out of all the high dividend ETFs and investors dump them
by smabie 6y ago
IBM absolutely needs the 5% dividend to survive, especially now. Without the dividend, IBM gets kicked out of all the high dividend ETFs and investors dump them on mass. Moreover, I imagine a substantial part of an employees comp is options or RSUs.
- deleted 6y ago[deleted]
- mettamage 6y agoOther than lower bonuses for employees. Why would this be bad for IBM to have a lower stock price? I understood all the terms, but I wouldn’t know the reasoning behind why it is important to be listed in certain places.
- scribu 6y agoIf the stock price is too low, then the company becomes a target for a hostile takeover. As an IBM executive, you don't want some PE firm becoming majority owner and replacing you with someone else.
- mettamage 6y agoI don't know anything about IBM in this regard. Isn't that situation dependant? Or is such a thing common enough to say that this usually is the case? I.e. +50% shares need to be outstanding (assuming nothing is owned by the hostile PE firm).
- scribu 6y agoYou're right, there need to be enough outstanding shares for a hostile takeover to take place. But more relevantly to IBM's case, the top shareholders are also the top executives. [1] So, in this case, the stock price going down affects them direcly. [1] https://www.investopedia.com/articles/insights/052216/top-5-ibm-shareholders-ibm.asp https://www.investopedia.com/articles/insights/052216/top-5-...
- Tehdasi 6y agoTop individual shareholders. Their holdings are tiny, the highest one holds ~10m compared to a market cap of ~100B.
- christophilus 6y agoThe equity value affects your access to capital, if I remember right. So, if you want to take out loans to ramp up after the virus clears, you’ll be impeded by a low stock price. Not saying this is a good move by IBM, but there may be reasons other than evil rich executives.
- fennecfoxen 6y agoBecause they have one job. That job is not "be the caretaker of this flock of people," and honestly, trying to socialize that risk at the firm level leads to a lot of problems (not the least of which being that the firm can fail in a crisis). The purpose of IBM is to make IBM's owners money. When the stock price drops precipitously, they lose money instead. When the stock price falls so low that they fall out of indexes, it will then go even lower, as the companies which hold the stock in an attempt to mimic an index (index funds, etc) switch to getting rid of it instead, which means selling more of it to an already-skeptical public.
- rightbyte 6y agoThe purpose of a shovel is to drain water from fields? Making money for the owners are a side effect of the purpose of a company unless it is a holding company.
- Nasrudith 6y agoThere are multiple purposes for tools. Companies are started to make money as one of their purposes.
- rightbyte 6y agoSure fair enought.
- fennecfoxen 6y agoIf IBM's owners didn't want to earn money on their investments, they'd have sent their money to charity directly, instead of buying IBM stock (and would have gotten much better charitable results). You are confusing the means to an end with the end itself.
- pookeh 6y agoIf IBM owns stock of itself then it can use that stock in lieu of cash to make acquisitions, hires, and bonuses. Having a lower stock price means it has a smaller leverage on those things.
- noad 6y agoSo we are driving company decision making based on the needs of synthetic fake financial instruments? Is there any other way to run a company that is more stupid than striving to fulfill the needs of someone else's derivative product? I cannot imagine a worse basis on which to steer a company. It makes zero sense. Using a random number generator to pick every decision would result in better results than what we are currently doing. An example of a company that has completely succumbed to Wall Street is Texas Instruments. They are (or used to be) a tech company. They used to have research. They used to create new products. But in the past few years they have started committing to "returning 100% of free cash flow to investors" (quoting their own earnings release) via stock buybacks and dividends. They actually put it down in writing: we are committed to NOT reinvesting in employees, NOT doing R&D, NOT creating new products. In every earnings call about how they are still committed to getting all the cash into stock buybacks and dividends. That's it. That's the whole company now. Wall Street loves Texas Instruments. The shiny bucket of treasure known as stock buybacks + equity based compensation is irresistible. This is going to keep happening until we make it stop happening.
- thrower123 6y agoIt's not like IBM actually makes anything anymore, though. They've become a vampiric global services and consulting company, Cognizant or TCS with borrowed respectability from their past.
- aryonoco 6y agoWait, we're talking about the same company that now owns RedHat, and whose next CEO will be RedHat's CEO, right? The same RedHat that has been the number one contributor to the Linux kernel, Gnome, and many other projects for over 2 decades?
- draw_down 6y agoYep! That one.
- thrower123 6y ago
- Lavery 6y agoA bunch of other folks have replied to different pieces of your comment, but I just want to point out that nearly all major index/ETF providers have halted rebalancing + reconstitution.
- rajnathani 6y agoDo you have a source to share about this ETF rebalancing halt?
- beezle 6y agoUnless IBM plans to float some new shares (highly unlikely) they have no reason to care about what ETFs or indicies they are in. If anything, cutting the dividend and reinvesting it into research/capex and paying down debt will go a lot further in the long run to making the stock more valuable.