IBM Stock Spinning Off Kyndryl

I have had a love/hate relationship with IBM for a long time.

On the one hand, it’s an American staple that successfully spun off its PC business back when it could get a good deal for it. On the other hand, it insists on wasting BILLIONS of dollars on share buybacks that do nothing more than help its executives meet their targets before they ship the stock back out the front door as executive stock options. But, and this is the kicker, IBM kicks out a very sweet dividend. Even when the stock trades sideways, earning 4% in a zero-interest environment with an almost zero chance of bankruptcy, it a great investment.

Check out my Stash stock back review.

Now, IBM is doing another thing that I don’t really like. IBM is listening to short-term investors who don’t like steady, but non-growth income. Instead, these shareholders want stock price appreciation, even at the cost of a long-term stable business. That means the board wants price appreciation. That means the CEO only earns those millions in bonuses if the stock price goes up, even if the company prints money during the day. As a result, IBM is spinning off its managed infrastructure services business. The new company will be called Kyndryl, which is dumb. (I didn’t get a lot of sleep. The name is dumb, but usually, I’d find a way to say that more diplomatically.)

The official version is this:

The company said “kyn” alludes to the word kinship, while “dryl” comes from “tendril,” alluding to new growth. Together, the name brings “to mind new growth and the idea that–together with customers and partners–the business is always working toward advancing human progress,” Schroeter said.

IBM’s Services Spinoff Gets a Name. What ‘Kyndryl’ Means. | Barron’s

If you say so.

It gets worse. They are calling their employees “Kyndryls.”

ibm spins off kyndryl
Kyndryl isn’t a real word, so this is the best I could do for some stock photography. Enjoy.

When Is IBM Spinning Off Kyndryl?

Updated: OK, here we go.

IBM’s Board of Directors approved the Kyndryl spinoff and set the terms. Here are the juicy details:

  • For every FIVE shares of IBM stock held on October 25, 2021, you will receive ONE share of Kyndryl (KD).

That makes October 25, the record date. You have to hold the stock on 10/25/2021 if you want your “free” Kyndryl shares from the spinoff.

The distribution date will be November 3, 2021. So, if you have your IBM shares on 10/25/2021, your Kyndryl shares will show up in your account on 11/03/2021, after the market closes.

“Today’s announcement is a milestone for IBM, its employees and its shareholders as we enter a new era of growth,” said Arvind Krishna, IBM chairman and chief executive officer.  “The separation of Kyndryl is a significant step in the continued evolution of IBM, a company now squarely focused on delivering powerful hybrid cloud and AI solutions and capabilities to enterprises around the world.”

Arvind Krishna, IBM Chairman and CEO

I’m not gonna look, but I bet you can find an almost word-for-word quote about the Lenovo sale when IBM sold off its PC business in order to focus squarely on delivering the managed infrastructure services it is now spinning off as Kyndryl.

It would be interesting to know what kind of company IBM would be today if instead of constantly spinning off businesses and buying back shares in order to make next quarter’s and next year’s results look better, if it actually focused on the long-term growth of profitability of all its assets. — I guess we’ll never know.

Look for Kyndryl to fire a bunch of people in an effort to lower its cost structure in a quest for profitability. I’m not going to go all the way into a full Kyndryl stock analysis, but when the main company tries to spin off a company that it thinks is dragging it down, it doesn’t seem like the spin off company is going to be a smart stock buy, at least not until it gets its feet under it and generates some results that are all its own and not part of the mothership.

Kyndryl Stock News Update:

No one listens to me (why would they?!) so the Kyndryl spinoff is going ahead. IBM will be smaller (and less competitive?), but this way the IBM CEO can show that he is growing the company based on the quarterly numbers, which is all anyone cares about. The long-term future of a company without all of the expertise, employees, and corporate relationships that Kyndryl will be taking away is of no concern.

Kyndryl estimates that its current addressable market is $415 billion. That market is expected to grow by 7% annually, reaching $510 billion in 2024.

Yeah. That sucks. Who would want anything like that, right? The quarterly numbers will have higher profit numbers and will grow faster… until the cloud is a mature business.

You can’t buy Kyndryl shares until they get put onto a stock market, which will happen with the spinoff. The Kyndryl stock symbol will be KD. You can buy Kyndryl shares when the spinoff is complete. IBM is hellbent on that being before 2022, so you can bet your money on late December 2021, as the date you can buy Kyndryl stock. Until then, if you want to buy Kyndryl shares, you need to buy IBM shares.

There has been no information about what the Kyndryl dividend might be, if there is one.

IBM Earnings

IBM’s new CEO says that that the software and solutions portfolio (cloud businesses) will make up the majority of company revenue after these parts of the company floats away.

It will take several quarters before investors get enough data to know what is left behind and how it compares with the old stability of a nice solid dividend stock. Conservative investors have no business getting in now. But, what about investors who already own shares of IBM stock?

IBM Spinoffs

IBM will separate its Managed Infrastructure Services unit of its Global Technology Services division into
a new public company (“NewCo”). This creates two industry-leading companies, each with
strategic focus and flexibility to drive client and shareholder value.

IBM Strategic Update

Translation? We hope people will think of IBM as a shiny, new, growth company that focuses on what is currently popular in tech.

No matter how many businesses IBM spins off, it won’t be a growth stock. No matter how many times the new CEO says, “trillion dollar opportunity,” it won’t be a growth stock. That doesn’t mean it won’t be a volatile stock, especially as investors get used to the new, slimmer IBM, at the same time as they get used to the new IBM CEO. But, does that make IBM stock a sell?

Well, that “trillion-dollar opportunity” does come with Amazon, and Microsoft as competitors both with a huge head start.

But, the only thing that matters is that dividend.

See my Credit Karma review.

That seems to be missing from the news coverage.

If you’re looking for growth in the technology sector, you’re looking in the wrong place. So, does spinning off legacy businesses make the company more or less likely to keep paying that juicy 4% dividend? Management says that the dividend will be the same but split between the two companies. No word on how much of the dividend ends up with either.

Following separation, the companies together are initially expected to pay a combined quarterly
dividend that is no less than IBM’s pre-spin dividend per share. Following the completion of the
separation, each company’s dividend policy will be determined by its respective Board of
Directors.

IBM Strategic Update 2020 Press Release

I wouldn’t rush to sell off my IBM shares, but it’s time to start looking around for another technology-based dividend company… maybe one that will grow into a nice, solid 4% dividend. I wish I’d have sold this out and jumped into Apple back when it was paying a nice juicy dividend. At least you know what you are going to get out of Apple for the next several years: more Macs, more iPhones, more Tablets, and huge Appstore income, and no spinoffs.

Hey, you know who already did this spinoff thing? HP. HPE has a near 3% dividend yield and HP has 2.3%… can’t help but wonder what dividend a combined HP/HPE would be paying. Oh well. At least Meg Whitman got all her bonuses.

About the Author

By Brian NelsonBrian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. At the time of publication, Mr. Nelson owned IBM shares, but he is having doubts about continuing that position. However, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

4 thoughts on “IBM Stock Spinning Off Kyndryl”

  1. Lost in the discussion?

    Did I just forfeit five shares of $100 IBM stock worth $500 for one share of Kyndryl stock that is worth $25?

    Please tell me I am seeing this wrong!

    Reply
  2. As an old IBM retiree, I remember when the name ISSC (Integrated Systems Solutions Center?) was created to handle outsourcing business, people asked ‘what is ISSC?’ ISSC was soon changed to ‘IBM Global Services’.

    Reply
    • Ironically, I started my career at ISSC and was working there when it became IBM Global Services. I’d prefer to see innovation rather than corporate restructuring, but building a long-term, growing business isn’t how CEOs get quick, fat, bonuses.

      Reply

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