But IBM's report did have its bright spots. Sales from the company's "strategic imperatives" -- that is, higher-growth areas in tech such as data security and cloud services -- climbed a solid 15% and now represent nearly half of IBM's total revenue. And its ongoing restructuring initiatives should leave IBM poised for higher profit margins going forward. IBM's dividend also now yields nearly 4.1% at today's prices.
But that also raises the question: For dividend-hungry investors, are there better places to put your money to work?
A much different dividend play
Steve Symington (Retail Opportunity Investments): As a relatively small, retail-centric real estate investment trust with a market capitalization of under $2 billion, Retail Opportunity Investments couldn't be more different than IBM, a $140 billion tech juggernaut.
But even putting aside its 4.6% annual dividend yield, which sits about half a percentage point higher than IBM's payout as of this writing, I think Retail Opportunity Investments offers investors more promising long-term share price appreciation.
Under the leadership of CEO Stuart Tanz -- who previously led Pan Pacific Retail from its $146 million IPO in 1997 to its $4.1 billion acquisition by Kimco in 2006 -- the company focuses on buying and revitalizing necessity-based retail properties in mid- to high-income areas throughout the western United States. This typically means those properties are anchored by large grocery chains, which ensures healthy foot traffic and strong occupancy rates (above 97% for the past four years) for remaining tenants in each center. This also helps insulate its properties from the growing impact of online shopping.
And Retail Opportunity Investments is growing quickly. The company acquired nearly $360 million in new shopping centers last year, adding over 1 million square feet to its portfolio. That brings its total to 91 properties encompassing 10.5 million square feet.
With shares trading at a reasonable 14.3 times this year's expected funds from operations, I think, the stock is a bargain for investors looking to open or add to a position today.
Bigger yield, but bigger risk
John Bromels (Energy Transfer Partners): IBM's yield of 4.1% seems pretty high...until you compare it to master limited partnership (MLP) Energy Transfer Partners, whose yield is more than three times as high at an astronomical 12.2%! But before you rush out to buy some shares, there are a couple of things you should know.
The first is that MLP ownership can be a pain come tax time. Because MLPs receive special tax treatment by the government in exchange for paying out all their earnings as distributions to their unitholders, those unitholders usually have to jump through some extra hoops -- including filling out extra forms -- for the IRS.
Beyond the tax issues surrounding MLPs in general, Energy Transfer Partners is a riskier proposition than IBM. Even though the company operates more than 71,000 miles of pipelines across the U.S. and has a well-established payout (plus a history of increasing it regularly), Energy Transfer Partners encountered some headwinds in 2017.
First of all, Energy Transfer Partners' balance sheet is highly leveraged, which isn't unusual for an energy infrastructure MLP, but it still isn't exactly a plus. Second, the company's distribution coverage was razor thin for most of 2017, which had the market concerned about a potential distribution cut. But then, in its Q4 2017 earnings report, management surprised investors by reporting a distribution coverage ratio of 1.3 times, which is a very comfortable margin. It also made some savvy moves to pay down more expensive debt through asset sales and take on some less expensive debt in return. And it's contemplating a big change to its management structure to accelerate growth.
In other words, although the risks are still there, they seem more remote than they did even a few months ago. And considering that the company has never cut its quarterly distribution, instead increasing it almost every quarter since it went public in 2002, Energy Transfer Partners looks like a risk worth taking for dividend investors.
A retailer looking for a rebound
Keith Noonan (GameStop): Like IBM, GameStop is a company that's angling for a turnaround amid pressures in its industry. However, compared to the IT software giant, the video game retailer's road to redemption looks more difficult. That's reflected in GameStop's valuation, with shares trading at just 4.5 times this year's expected earnings and 0.16 times forward sales while offering a nearly 11% dividend yield.
The company's lifeblood has been the sale of new and used video game software, but the long-term outlook sees those crucial sales streams narrowing. Players are increasingly using digital downloads to buy their games, a trend that publishers are eager to push along because it nets them a greater portion of the sale. So, that transition is happening, and GameStop's mobile hardware and service segment, once viewed as a potential growth driver, is also weakening. Shares have lost roughly two-thirds of their value over the last three years. However, there could be worthwhile upside for risk-tolerant investors.
The company has presented a series of new strategies that include getting its most active customers more engaged, building up its online sales channels, reaching out to casual game fans, and focusing more on growth ventures like its collectible merchandise businesses. GameStop could also beat expectations if Nintendo's Switch console continues to perform at a high level and if new hardware launches from Sony and Microsoft arrive within the next several years (and do not do away with their support for playing games off of discs).
GameStop has a challenging road ahead, but, with shares trading at such low multiples and offering a big dividend, the company could be worthy of consideration for risk-tolerant investors seeking big yield.