International Business Machines Corp. increased its dividend by 50 percent Tuesday in an attempt to jolt the technology bellwether’s listless stock price.
The move was announced at IBM’s annual shareholders meeting, where about 250 investors heard Chairman and Chief Executive Sam Palmisano tout the company’s prospects.
Palmisano also defended the company’s recent decision to freeze its U.S. pension plan, arguing that “we had to do something” to reduce the liabilities and uncertainties surrounding employee benefits.
Before Tuesday, IBM’s quarterly dividend of 20 cents per share amounted to about a 1 percent annual yield, based on IBM’s recent stock price of roughly $80. The new dividend of 30 cents per share takes effect this quarter and is expected to continue through the rest of the year.
IBM said the move would transfer an additional $600 million to shareholders annually, to $1.9 billion. IBM ended 2005 with a cash hoard of $13.7 billion, which Palmisano called IBM’s highest mark in 15 years.
The board of directors also authorized IBM to buy back an additional $4 billion in company shares. The company already had $2.5 billion still set aside for that purpose, raising the total available for buybacks to $6.5 billion. IBM has spent $24 billion buying back stock since 2002.
IBM shares have been flat this year after falling 17 percent in 2005, even though the company has been posting healthy profits, including $8 billion last year. Many analysts worry that IBM’s gains are coming mainly from cost cuts that can’t go on forever, rather than from growth in the company’s key businesses.
Indeed, with Big Blue’s revenue rising only mildly, rival Hewlett-Packard Co. is expected to pull ahead as the world’s largest information-technology vendor this year.
Shares of Armonk, N.Y.-based IBM rose 56 cents to close at $82.67 on the New York Stock Exchange. The 52-week range is $72.50 to $89.94.
Anticipating what he figured would be a hot topic among shareholders, Palmisano began the investors’ question-and-answer session with a discourse of his own on IBM’s January decision to freeze pension benefit accruals after 2007 and instead enhance the 401(k) plan.
Palmisano said he hoped investors would admire the courage it took to make a long-term decision that would keep IBM from meeting the fate of airlines and automakers smothered by enormous pension costs. Later, when 51-year-old IBM consultant Jim Askew said he was concerned and felt betrayed by the pension move — given that he had banked all his career on a generous retirement — Palmisano’s eyebrows went up.
“I’ve been here for 33 years,” Palmisano said. “I understand. This was a very, very hard thing for me to do personally.”
Whether investors had other beefs was unclear. Palmisano adjourned the meeting after taking just three questions from the floor and two hand-picked questions submitted over the Web — including one about how he justified the $19 million compensation package he picked up last year.
Pensions also were the subject of a shareholder measure that failed but gained momentum. The proposal calls for pension fund investment gains to be excluded from the overall profit figures used to calculate executive compensation. The measure won 43 percent approval after picking up 38 percent last year.
Only one shareholder resolution passed, a measure recommending that IBM make it clear that issues subject to investor votes can pass with a simple majority. It won 62 percent support. IBM called the measure irrelevant because it has no provisions requiring super-majorities, but Palmisano said the board would take it under advisement.