over 3 years ago • 2 mins
Tech trendsetter IBM showed off a whole new look on Thursday, announcing plans to split itself into two separate companies 👯♂️
By the end of next year, IBM will spin off its business that manages the technology infrastructure of some of the world’s biggest companies – a market worth $500 billion – into a new public company 📊 It’ll instead focus on the $1 trillion market opportunity in cloud computing and artificial intelligence (AI), via services like Watson (a Jeopardy-winning AI) and Red Hat (open-source software that cost IBM $34 billion in 2018). The company’s hoping the separation will set both firms on a path toward improved growth, higher profits, and bigger rewards for each set of investors.
Investors tend to categorize companies as either high-growth – if they grow earnings quickly – or high-yield – if they’re slower-growing but stable enough to pay dividends. IBM’s firmly in the latter category: it has a current dividend yield of 5.4% (calculated by dividing IBM’s forecasted dividends over the next year by its share price) 🤔 But considering its cloud computing segments are high-growth, the company might’ve thought its share price deserved to be higher (and its dividend yield – since the two move inversely – lower). By splitting up, then, it’ll create both a stable dividend-paying business and a higher-octane growth business.
It was a sideshow to the main event, but IBM also revealed preliminary third-quarter results that were roughly in line with investors’ expectations. Its stock jumped 4% on Thursday, though chances are it was mostly thanks to the investors who bought in ahead of its upcoming split 💻 That could be an encouraging sign for the US tech titans that might eventually be forced to break up – not to mention for the investors who might end up richer if they are.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.