Self-made millionaire Danny Baldus-Strauss credits some of his financial success to the books he read throughout his 20s.
"For the first five years of my career, I spent a lot of my off time reading," Baldus-Strauss, who worked at IBM until quitting in 2020 to work for himself, told Insider. Towards the end of his career, he started putting the concepts he read and learned about into practice. "I focused on building income streams."
Today, the 31-year-old has a variety of revenue streams and earns more than he did at IBM, he said. He does sales consulting, cryptocurrency mining, runs an e-commerce store, and he rents out his home on Airbnb. He's also spent years building his own brand, Backpacker Finance. He has over 97,000 followers on Twitter makes money through affiliate marketing.
Here are four of Baldus-Strauss's top book recommendations for anyone looking to get ahead financially and build wealth. Most of them are mindset-related, he noted, as it's equally important to fix your mindset around money as it is to fix your financial habits.
If you're not sure where to find time in your day to read, try what Baldus-Strauss does: He reads about 10 pages per night and listens to 30 minutes of an audiobook while working out five times per week. It's not a ton of time, but the consistency is enough to get him through 30 or more books a year.
At the beginning of 2020, the year Baldus-Strauss left corporate America, he read "Atomic Habits" by James Clear. It's what inspired him to build his Twitter following, which is now a key revenue driver for him.
"I knew that Twitter would be a tool I could eventually monetize by creating a big enough following that I could then either team up with brands or build out courses," he explained. "I knew that I needed to build a following first and then there would be monetization opportunities, so I started by just writing and tweeting every day."
Clear's book emphasizes that "small, consistent actions can create a big result," he said. "So, every single day, I consistently tweeted."
As with most things in life, success doesn't happen overnight. "There were times when I was at 3,000 or 4,000 followers, doubting that I would ever get there because it took so much work to build content. I would spend two hours on a thread and it would get like seven likes, but I just didn't stop and eventually, that consistency built a following. Eventually, my message started to resonate."
Regardless of what you're trying to build or achieve, Clear's book will help you form good habits and break bad ones, he said.
Every morning, Baldus-Strauss reads an excerpt of "The Daily Stoic" by Ryan Holiday. It compiles 366 Stoic insights, one for each day of the year, from ancient philosophers like Emperor Marcus Aurelius and the playwright Seneca.
The Stoic philosophy is 2,000 years old, but still relevant today, he said: "Each page has a bit of a life lesson, typically around the idea of, you can't always control what happens — but you can control your reactions to it."
This philosophy helps him stay calm during market downturns, including the major one in 2020, when his net worth dropped by "multiple six-figures," he said. While he can't control what's happening in the markets, he can control how he responds. (In this particular instance, he chooses not to respond and, instead, stay the course rather than pull money out.)
In "The Psychology of Money," author Morgan Housel dives into how people think about money, and how their personal experiences with money shape their behavior towards it.
For example, "If you happened to grow up when the stock market was strong, you invested more of your money in stocks later in life compared to those who grew up when stocks were weak," Housel writes.
Housel's main point is that mastering your money isn't necessarily about what or how much you know; it's about how you behave.
"He goes through the biases and the fear that we have towards money," said Baldus-Strauss. "And how we see investing based on the time period that we grew up in. This book is an excellent way to build some mental models around money and investing."
Baldus-Strauss says that Steven Pressfield's "The War of Art" is his favorite among the dozens of books he's read. (Not to be confused with "The Art of War," an ancient Chinese military treatsie that has been applied to investing.)
"It's about the concept of resistance," he explained. "Every day, you're going to wake up and you're going to have some form of resistance."
Pressfield's book describes resistance as the greatest enemy — it's what holds you back from doing what you really want to do, whether that's writing or creating content or starting a business — and offers advice on how to overcome it.
"It helped a lot when I was growing my Twitter account," said Baldus-Strauss. "There were a lot of times when I felt like giving up — when I was putting so much time and effort into building threads and writing newsletters and creating free content, not knowing if I'd be rewarded in the future. I had doubts and woke up almost every day with some level of resistance."
Whether you're trying to build a side hustle or save a little bit of money each day to make a down payment on a property, Pressfield's book will keep you motivated.
As the author puts it: "It's better to be in the arena, getting stomped by the bull, than to be up in the stands or out in the parking lot."
June 14, 1822
Charles Babbage reads to the Royal Astronomical Society a paper entitled "Note on the application of machinery to the computation of astronomical and mathematical tables" in which he proposes the construction of the Difference Engine. Considered to be a pre-curser of modern computers, it was designed to speed-up the production of error-free mathematical tables, just as early modern computers did. In 1991, London’s Science Museum completed the construction of the first-ever working model of the Difference Engine, under the direction of Doron Swade and Alan Bromley. Swade wrote in his 2000 book, The Difference Engine: Charles Babbage and the quest to build the first computer:
This book is a tale of two quests. The first is Charles Babbage’s quest to realise a vision—that the science of number could be mastered by mechanism. By simply turning the handle of his massive calculating engine Babbage planned to achieve results which up to that point in history could be achieve only by mental effort—thinking. But this was not all. Calculating engines offered a tantalizing new prospect. The ‘unerring certainty’ of mechanism would eliminate the risk of human error to which numerical calculation was so frustratingly prone. Infallible machines would compensate for the frailties of the human mind and extend its powers…
The second quest is the twentieth-century sequel: The quest at the Science Museum to build a working Babbage engine in time for the bicentenary of Babbage’s birth.
June 14, 1941
John Mauchly meets John Atanasoff at Iowa State University. During the next five days, Mauchly learned everything he could about what became to be known as the Atanasoff-Berry Computer (ABC) which he first heard about when Atanasoff visited Philadelphia in December 1940. The ABC was the first electronic digital computing device but was never put to real use because both Atanasoff and Berry left Iowa in 1942 to contribute to the war effort and did not resume the work after the war.
The significance of this meeting emerged years later when it became part of the evidence that led the judge in the case of Honeywell, Inc. v. Sperry Rand Corp., et al. to decide that the ENIAC patent was invalid, among other reasons, because “Eckert and Mauchly did not themselves invent the automatic electronic computer, but instead derived that subject matter from one Dr. John Vincent Atanasoff.” Campbell-Kelly and Aspray conclude in Computer: A History of the Information Machine:
The extent to which Mauchly drew on Atanasoff’s ideas remains unknown, and the evidence is massive and conflicting. The ABC was quite modest technology, and it was not fully implemented. At the very least we can infer that Mauchly saw the potential significance of the ABC and that this may have led him to propose a similar electronic solution to the Ballistic Research Laboratory’s [at the Moore School of Electrical Engineering at the University of Pennsylvania] computing needs.
They also note that in June 1941, Mauchly and Atanasoff “parted on very amicable terms.” Indeed, Mauchly wrote to Atanasoff on September 30th of that year:
A number of different ideas have come to me recently anent computing circuits—some of which are more or less hybrids, combining your methods with other things, and some of which are nothing like your machine. The question in my mind is this: is there any objection, from your point of view, to my building some sort of computer which incorporates some of the features of your machine? … Ultimately a second question might come up, of course, and that is, in the event that your present design were to hold the field against all challengers, and I got the Moore School interested in having something of the sort, would the way be open for us to build an ‘Atanasoff Calculator’ (a la Bush analyzer) here?
June 16, 1911
The Computing-Tabulating-Recording Company is incorporated. It changed its name to IBM in 1924. In “Ideas make IBM 100 years young,” IBM’s Bernard Meyerson writes: “…if you really think about what keeps a company going, it’s that you have to keep reinventing yourself. You cannot reinvent yourself in the absence of great ideas. You have to have the great ideas, and you have to follow them through.” Meyerson equates the great ideas that sustain the life of a company with great innovations but in “1100100 and counting,” The Economist quotes Forrester Research’s George Colony: “IBM is not a technology company, but a company solving business problems using technology” and concludes:
Over time [the close relationships between IBM and its customers] became IBM’s most important platform—and the main reason for its longevity. Customers were happy to buy electric ‘calculating machines’, as Thomas Watson senior insisted on calling them, from the same firm that had sold them their electromechanical predecessors. They hoped that their trusted supplier would survive in the early 1990s. And they are now willing to let IBM’s services division tell them how to organise their businesses better.
Kevin Maney lists five lessons he drew from his close study of IBM’s history, the first one being “At the start, convince the troops you’re a company of destiny, even if that seems crazy.” Thomas Watson Sr. did this and more. In a 1917 speech he said: “My duty is not the building of this business; it is rather, the building of the organization. … I [know] only one definition of good management; that is, good organization. So, as I see it, my work consists in trying to build a bigger and better organization. The organization, in its turn, will take care of the building of the business.”
So what was the Big IBM Idea? A trusted supplier? A focus on destiny and longevity? Building a bigger and better organization? All of the above?
In a 1994 Harvard Business Review article titled “The theory of the business,” Peter Drucker advanced the argument that great businesses revolve around a certain idea or “a theory of the business,” articulating the company’s assumptions about its environment, its mission, and its core competencies.
In response, I discussed in a letter-to-the-editor the similarities and dissimilarities between scientists and managers:
Managers [like scientists] must articulate their theories and how they can be refuted and then seek data that prove their theories wrong. That will prevent them from falling into the trap of discarding successful theories… the theory of the business may not just explain reality or past business success; it may also define it by communicating and convincing employees and customers that the company is unique. A business theory, then, unlike a scientific theory, can be true and false at the same time. That is how, as Drucker has illustrated, IBM and General Motors could both succeed and fail when they applied the same business theory to two different businesses.
In short, an idea or a set of ideas may explain past business success. But, business school education and management gurus notwithstanding, one cannot extract from history “management lessons,” prescriptions, and predictions about the future of this or any other business. Even if we had a perfect understanding of the reasons for IBM’s longevity, that would not tell us anything about the future of Apple or Google or Facebook. There is no one explanation or theory of business success and the same reasons for success in one case can be the very same reasons for failure in another.
I didn’t know it in 1994, but it turns out I was channeling Thomas Watson Sr. who said in another speech, this one in January 1915, shortly after he joined C-T-R:
We all know there have been numerous books written on scientific factory management, scientific sales management, the psychology of selling goods, etc. Many of us have read some of those books. Some of them are good; but we can’t accept any of them as a basis for us to work on. Neither can you afford to accept my ideas as whole and attempt to carry them out, because I do not believe in a fixed method–in any fixed way of selling goods, or of running a business.
June 16, 1977
Software Development Laboratories (SDL) is incorporated in Santa Clara, California, by Larry Ellison, Bob Miner and Ed Oates. It changed its name to Relational Software, Inc. (RSI) in 1979 and again to Oracle Systems Corporation in 1982. Since 1995, it has been known as Oracle Corporation.
June 18, 1908
Alan Archibald Campbell-Swinton publishes a letter in the journal Nature titled “Distant Electric Vision” in which he envisioned television as it was developed three decades later. He wrote: “Possibly no photoelectric phenomenon at present known will provide what is required in this respect, but should something suitable be discovered, distant electric vision will, I think, come within the region of possibility.”
In May 2013, Netflix stated its view on the future of television (PDF): “Over the coming decades and across the world, Internet TV will replace linear TV. Apps will replace channels, remote controls will disappear, and screens will proliferate. As Internet TV grows from millions to billions, Netflix, HBO, and ESPN are leading the way.”
June 18, 1948
Columbia Records introduces the LP (long playing) record at a press conference in the Waldorf Astoria hotel in New York.
At the time the LP was introduced, nearly all phonograph records for home use were made of an abrasive (and therefore noisy) shellac compound, employed a much larger groove, and played at approximately 78 revolutions per minute (rpm), limiting the playing time of a 12-inch diameter record to less than five minutes per side. The new product was a 12- or 10-inch (30 or 25 cm) fine-grooved disc made of vinyl and played with a smaller-tipped "microgroove" stylus at a speed of 33 1⁄3 rpm. Each side of a 12-inch LP could play for more than 20 minutes.
The LP was developed—and became the standard for record industry for half a century—when Columbia's president Edward Wallerstein insisted on hearing an entire movement of a symphony on one side of an album. Ward Botsford in High Fidelity magazine: "He was no inventor—he was simply a man who seized an idea whose time was ripe and begged, ordered, and cajoled a thousand men into bringing into being the now accepted medium of the record business."
As many of our readers know by now, we have spent the majority of 2022 looking to bolster our equity portfolios with names that should be able to better withstand a higher interest rate environment and a potential recession. Focusing on companies with stable revenues, relatively predictable earnings and respectable dividend yields has helped shelter us from some of the carnage that has resulted from the bear market. One name that has been a surprise in our portfolios in 2022 is International Business Machines (NYSE:IBM). IBM has returned 4.68% while also paying what was a nearly 5% yield; so the YTD total return is above 7%. Not bad at all when the market has entered a bear market and the S&P 500 is down over 18% in the same period.
While we like IBM long-term, in a bear market the best plan of action is to always be willing to take action. We have been selling covered calls on IBM shares we own in various portfolios throughout 2022 when it made sense, but with earnings season upon us, we revisited the stock and IBM's business prospects to see how we would trade the stock across various client portfolios.
Part of managing money is revisiting portfolio holdings and past trades. One exercise we like to do each morning is browse through the portfolios and see if there is anything that we are no longer interested in owning at current prices or based off of latest news (and if we identify anything, then we have to decide the best way to trade those holdings moving forward). Doing that exercise this weekend caused us to take a deeper look at IBM and weigh how we thought the stock might perform with earnings coming out Monday night.
With the U.S. Federal Reserve raising interest rates at a relentless pace while Japan, the EU and China all struggle economically right now and hold off on tightening, the U.S. Dollar has been on a tear.
Why does this matter? Well based on 2022 Q1 revenues, the Americas represented 50% of IBM's revenues. The company's revenues in Europe, Middle East & Africa (EMEA) and Asia Pacific were 29.58% and 20.42%, respectively. So even if IBM is extremely well hedged on the currency front and finds a way to offset currency headwinds with new business, with over 50% of revenues coming from outside of the United States, and a reluctance of other central banks to move aggressively (namely the EU and Japanese), then eventually the U.S. Dollar's strength is going to provide a significant headwind. Will that be this quarter, next quarter, or a year from now? We are not sure on the exact timing, but we do know that the impact will eventually be felt and that it could be sooner rather than later.
IBM has even discussed this in previous quarter's earnings calls, with the below slide attached to their Q1 2022 quarterly results materials.
While currency is a real concern, we also have some questions about IBM's ability to recognize revenue on historical timelines. We have heard stories from friends in the industry where they are unable to bill for IT consulting services, or those on the other side of the deal not paying for IT consulting services because they are waiting to take delivery of product for installation, etc. So although the good news is that we have heard of many businesses looking to outsource tasks right now due to the tight labor market, the bad news is that there seems to be an issue for some companies with being able to do the contracted consulting work because projects are getting delayed as customers await delivery of key materials or products. This might not be an issue for IBM currently, but it is a troubling theme we have been hearing more and more about.
We think that there are three points with which to view trading IBM around earnings.
If you already own the shares: This is the boat that we are in across the majority of our personal portfolios. We believe that holding the shares remains prudent, however we also think that it is wise to attempt to create as many income streams from the shares as possible in a bear market, so we recommend selling covered calls on IBM shares sometime Monday before the market closes. We are focused on the July 22, 2022 $145 Calls and will target $2.01/share or higher in order to book a $200+ option premium after fees (or roughly a 1.4% yield from the option premium). With this trade, the stock would have to rise more than 5% for us to "lose" and if we do get called on our shares, we are confident that there are other names we could purchase that would deliver the same yield and possibly better growth prospects.
If you want to buy shares for a long-term investment: While we understand the allure of the dividend and predictable cash flows that the business generates, we think that investors should be very methodical in how and when they enter trades in this market. So if an investor wants to add exposure to IBM, we believe that rather than buying shares outright they should look at utilizing the options market to choose their entry level and potential dividend yield. If it were a trade, we needed to place for one of our portfolios, and we do have a client portfolio or two that this trade may work for, then we would focus on the July 22, 2022 Puts utilizing either the $130 or the $132 strikes. We prefer the $130 contract due to the liquidity but recognize that some readers may see the $1.15/share premium as "not worth the work" because of the 0.88% yield on the premium. Utilizing the $132 puts and the expected $1.52/share premium delivers a 1.15% yield on the premium. We would point out that either trade is acceptable in our book because if exercised, you would own IBM shares at a level that yields at least 5% (assuming no dividend cut).
If you want to trade earnings: We recommend against trading IBM shares specifically for earnings and we do believe that the currency headwinds and supply chain issues might impact the business faster than some expect. If one was to play this name for earnings, we would look to buy the July 22, 2022 $145 Calls below $2/share during Monday's session while also buying the July 22, 2022 $135 Puts below $2.30/share. Basically, the stock will have to move 7% one way or the other to make money and depending on your ability to exit the losing side of the trade it could be less.
In a bear market, any time you can find a way to exit a position and get paid to do so, you have to look at that as a win. We believe that managing positions is the best way to manage your overall portfolio in a market such as this because even though you run the risk of the tail wagging the dog, you should have another opportunity (and usually in a short period of time) to re-enter the trade at the same price, or a better price, from where you were forced to exit. The one item that might impact how readers approach IBM in the current market and how they use the options market to move in and out of positions is the company's dividend. There is probably less than a month before the stock goes ex-dividend, so utilizing the current week's contracts makes a lot of sense because if they are exercised on you, then you can utilize IBM's weekly options contracts moving forward in order to reestablish the position, if desired. That strategy would give you two weeks to try and reenter the stock.
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Riyadh, Saudi Arabia: IBM, the leading global technology company, has published a study highlighting the importance of cybersecurity in an increasingly digital age. According to IBM Security’s annual Cost of a Data Breach Report, the Middle East has incurred losses of SAR 28 million from data breaches in 2022 alone — this figure already exceeding the total amount of losses accrued in each of the last eight years.
The latest edition of the Cost of a Data Breach Report — now in its 17th year — reveals costlier and higher-impact data breaches than ever before. As outlined by the study, the global average cost of a data breach has reached an all-time high of $4.35 million for surveyed organizations. With breach costs increasing nearly 13% over the last two years of the report, the findings suggest these incidents may also be contributing to rising costs of goods and services. In fact, 60% of studied organizations raised their product or services prices due to the breach, when the cost of goods is already soaring worldwide amid inflation and supply chain issues.
Notably, the report ranks the Middle East2 among the top five countries and regions for the highest average cost of a data breach. As per the study, the average total cost of a data breach in the Middle East amounted to SAR 28 million in 2022, the region being second only to the United States on the list. The report also spotlights the industries across the Middle East that have suffered the highest per-record costs in millions; the financial (SAR 1,039), health (SAR 991) and energy (SAR 950) sectors taking first, second and third spot, respectively.
Fahad Alanazi, IBM Saudi General Manager, said: “Today, more so than ever, in an increasingly connected and digital age, cybersecurity is of the utmost importance. It is essential to safeguard businesses and privacy. As the digital economy continues to evolve, enhanced security will be the marker of a modern, world class digital ecosystem.”
He continued: “At IBM, we take great pride in enabling the people, businesses and communities we serve to fulfil their potential by empowering them with state-of-the-art services and support. Our findings reiterate just how important it is for us, as a technology leader, to continue pioneering solutions that will help the Kingdom distinguish itself as the tech capital of the region.”
The perpetuality of cyberattacks is also shedding light on the “haunting effect” data breaches are having on businesses, with the IBM report finding 83% of studied organizations have experienced more than one data breach in their lifetime. Another factor rising over time is the after-effects of breaches on these organizations, which linger long after they occur, as nearly 50% of breach costs are incurred more than a year after the breach.
The 2022 Cost of a Data Breach Report is based on in-depth analysis of real-world data breaches experienced by 550 organizations globally between March 2021 and March 2022. The research, which was sponsored and analyzed by IBM Security, was conducted by the Ponemon Institute.
Some of the key global findings in the 2022 IBM report include:
“Businesses need to put their security defenses on the offense and beat attackers to the punch. It’s time to stop the adversary from achieving their objectives and start to minimize the impact of attacks. The more businesses try to perfect their perimeter instead of investing in detection and response, the more breaches can fuel cost of living increases.” said Charles Henderson, Global Head of IBM Security X-Force. “This report shows that the right strategies coupled with the right technologies can help make all the difference when businesses are attacked.”
Over-trusting Critical Infrastructure Organizations
Concerns over critical infrastructure targeting appear to be increasing globally over the past year, with many governments’ cybersecurity agencies urging vigilance against disruptive attacks. In fact, IBM’s report reveals that ransomware and destructive attacks represented 28% of breaches amongst critical infrastructure organizations studied, highlighting how threat actors are seeking to fracture the global supply chains that rely on these organizations. This includes financial services, industrial, transportation and healthcare companies amongst others.
Despite the call for caution, and a year after the Biden Administration issued a cybersecurity executive order that centers around the importance of adopting a zero trust approach to strengthen the nation’s cybersecurity, only 21% of critical infrastructure organizations studied adopt a zero trust security model, according to the report. Add to that, 17% of breaches at critical infrastructure organizations were caused due to a business partner being initially compromised, highlighting the security risks that over-trusting environments pose.
Businesses that Pay the Ransom Aren’t Getting a “Bargain”
According to the 2022 IBM report, businesses that paid threat actors’ ransom demands saw $610,000 less in average breach costs compared to those that chose not to pay – not including the ransom amount paid. However, when accounting for the average ransom payment, which according to Sophos reached $812,000 in 2021, businesses that opt to pay the ransom could net higher total costs - all while inadvertently funding future ransomware attacks with capital that could be allocated to remediation and recovery efforts and looking at potential federal offenses.
The persistence of ransomware, despite significant global efforts to impede it, is fueled by the industrialization of cybercrime. IBM Security X-Force discovered the duration of studied enterprise ransomware attacks shows a drop of 94% over the past three years – from over two months to just under four days. These exponentially shorter attack lifecycles can prompt higher impact attacks, as cybersecurity incident responders are left with very short windows of opportunity to detect and contain attacks. With “time to ransom” dropping to a matter of hours, it's essential that businesses prioritize rigorous testing of incident response (IR) playbooks ahead of time. But the report states that as many as 37% of organizations studied that have incident response plans don’t test them regularly.
Hybrid Cloud Advantage
The report also showcased hybrid cloud environments as the most prevalent (45%) infrastructure amongst organizations studied. Averaging $3.8 million in breach costs, businesses that adopted a hybrid cloud model observed lower breach costs compared to businesses with a solely public or private cloud model, which experienced $5.02 million and $4.24 million on average respectively. In fact, hybrid cloud adopters studied were able to identify and contain data breaches 15 days faster on average than the global average of 277 days for participants.
The report highlights that 45% of studied breaches occurred in the cloud, emphasizing the importance of cloud security. However, a significant 43% of reporting organizations stated they are just in the early stages or have not started implementing security practices to protect their cloud environments, observing higher breach costs3 . Businesses studied that did not implement security practices across their cloud environments required an average 108 more days to identify and contain a data breach than those consistently applying security practices across all their domains.
Additional findings in the 2022 IBM report include:
About IBM Security
IBM Security offers one of the most advanced and integrated portfolios of enterprise security products and services. The portfolio, supported by world-renowned IBM Security X-Force® research, enables organizations to effectively manage risk and defend against emerging threats. IBM operates one of the world's broadest security research, development, and delivery organizations, monitors 150 billion+ security events per day in more than 130 countries, and has been granted more than 10,000 security patents worldwide. For more information, please check www.ibm.com/security, follow @IBMSecurity on Twitter or visit the IBM Security Intelligence blog.
Dividend investors tend to ignore tech stocks. As an industry focused heavily on emerging companies and rapid growth, these enterprises have often chosen to reinvest in themselves rather than distribute cash to shareholders.
However, maturing tech companies have tended to buck this trend, and many offer payouts well above the S&P 500 average yield of 1.6%. A combined portfolio of AT&T (T -1.33%), International Business Machines (IBM 0.29%), and Intel Corporation (INTC 0.05%) demonstrates such cash flows. A comparatively modest investment can yield $1,000 in total annual income.
Justin Pope (AT&T): Investing in telecom giant AT&T is like hitting the easy button for dividend investors. It pays a quarterly dividend, adding up to an annual total of $1.11 for shareholders. You'll need to buy an even 300 shares to generate $333 in annual dividend income, a total investment of $6,370 at today's share price.
AT&T is the leading U.S. telecom company, with an estimated 43% of the wireless market. Only a couple of companies, Verizon and T-Mobile, compete with AT&T because the billions of dollars needed to invest in upgrading and maintaining cellular networks each year discourage new companies from entering the industry.
Additionally, smartphones have become central to modern society's way of life, which means that people typically pay their phone bills, regardless of what the economy's doing. It's more a household necessity than a discretionary luxury these days.
AT&T's had a challenging decade, taking on a lot of debt to acquire DirecTV and Time Warner to build an entertainment business. It didn't work out, and AT&T sold and spun off its entertainment assets to become a pure telecom again.
The company received $43 billion from the Time Warner spin-off to pay down debt, and management reduced the dividend payout ratio to just 40% to 43% of estimated free cash flow. Remember that AT&T yields more than 5% despite the cut, and now shareholders can feel great that the dividend is affordable.
Analysts believe AT&T's earnings per share (EPS) will grow by almost 4% annually over the next three to five years. You're going to buy AT&T for that juicy dividend, but getting some growth with it should help fuel future dividend increases while adding to your total returns.
Jake Lerch (IBM): If you're looking to maximize passive income, there are certain elements your stock investments should have. It might even help to develop a checklist, to ensure that each stock you own has the necessary ingredients that make up a great passive income stock. Here's mine:
One tech company that ticks all these boxes is IBM. Let's run through each element.
IBM pays $1.65 quarterly -- $6.60 per share annually -- good for a 4.8% dividend yield. IBM shares currently trade at $137.50, so 50 shares (a $6,875 investment) will generate $330 in annual dividend income.
Volatility is a measure of price stability. Beta is a mathematical expression of volatility. Stocks with a beta of 1.0 correlate perfectly with the S&P 500 index, while those with a beta of 2.0 would have twice the index's volatility. IBM has a beta of 0.94, meaning the stock trades more or less in tandem with the S&P 500 index. This level of stability is near the sweet spot when looking for stocks that generate passive income.
IBM generates $9.47 of free cash flow per share, or $8.6 billion in total. As of its most latest quarter, the company had $10.5 billion in cash or cash equivalents. However, it does have a significant debt load, with over $57.6 billion in debt. Nevertheless, it's generating enough cash and has enough on hand to continue servicing its debt and paying its current dividend. However, investors should keep an eye on IBM's balance sheet; rising interest rates could force it to cut its dividend if it cannot generate enough free cash flow.
IBM's current price-to-book ratio is 6.5, while its 10-year average is 8.1. This valuation is neither cheap nor expensive, as it hovers between similar legacy technology companies like Texas Instruments (price-to-book of 9.9) and Cisco (4.4).
Will Healy (Intel): Intel looks like a counterintuitive choice at first, as its former rivals seem to have eclipsed this longtime industry leader. However, Intel has set a goal of recapturing its lead, and it's showing partial signs of success. According to a Morgan Stanley report, Intel's Alder Lake CPU has caused AMD's revenue to decline by 26%, an indication Intel can still compete in this market.
Meanwhile, Intel's stock has declined amid the tech sell-off. It also faces pressure due to the tens of billions it plans to spend to enter the foundry business and attempt to catch up technologically with the current foundry industry leaders, TSMC and Samsung.
But that stock price drop could highlight Intel's $1.46 per share annual dividend, which now yields 3.9%! Though that yield slightly lags those of AT&T and IBM, an $8,380 investment (about 228 shares) will yield about $333 yearly.
Moreover, Intel has increased this payout most years since 2004, and amid company struggles, it should maintain that pace. In 2021, it generated $11.3 billion in free cash flow, enough to cover the dividend's $5.6 billion cost.
This doesn't mean Intel's struggles have ended. In the first quarter of 2022, it reported $18.4 billion in non-GAAP revenue, a 1% drop year over year. The rising cost of sales and increased operating expenses caused non-GAAP net income to fall 35% during that period to $3.6 billion.
However, the stock sells for a price-to-earnings ratio of six, and it has fallen to less than 1.5 times its book value, arguably making it too cheap to ignore. This is especially true for dividend investors, as payouts will likely continue to rise.
Intel's goal of becoming the chip industry leader still looks like a tall order. However, if it can achieve at least partial success, its income, stock price, and dividend payout should rise significantly over time.
Jake Lerch has positions in AT&T, IBM, and Verizon Communications. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Cisco Systems, Intel, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends T-Mobile US and Verizon Communications and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.
Readers hoping to buy International Business Machines Corporation (NYSE:IBM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase International Business Machines' shares before the 9th of August in order to be eligible for the dividend, which will be paid on the 10th of September.
The company's upcoming dividend is US$1.65 a share, following on from the last 12 months, when the company distributed a total of US$6.60 per share to shareholders. Looking at the last 12 months of distributions, International Business Machines has a trailing yield of approximately 5.0% on its current stock price of $131.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether International Business Machines can afford its dividend, and if the dividend could grow.
Check out our latest analysis for International Business Machines
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year International Business Machines paid out 105% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's good to see that while International Business Machines's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see International Business Machines's earnings per share have dropped 13% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. International Business Machines has delivered 8.2% dividend growth per year on average over the past 10 years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. International Business Machines is already paying out 105% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Is International Business Machines worth buying for its dividend? Earnings per share have been in decline, which is not encouraging. Worse, International Business Machines's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of International Business Machines don't faze you, it's worth being mindful of the risks involved with this business. For example, International Business Machines has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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