Don’t be tempted by IBM’s dividend in 2019, this portfolio manager says

Last year was anything but pretty for IBM (IBM Stock Quote, Chart NYSE:IBM), which was trailing along alright until the floor dropped out in October. But the stock has been on the rise in 2019, helped by a consensus beat in its latest quarter. And with a healthy dividend currently sitting at 4.5 per cent, what’s not to like about IBM?

For starters, it’s in the wrong space, says Cameron Hurst of Equium Capital Management, who argues that if it’s tech stocks you want, try software and services or fintech.

IBM ended February on quite a run, with the stock jumping 21.5 per cent over the first two months of the year and is currently trading in the high $130.00 range. That’s good news for a name that’s been on a downward trend for a good half-decade now, with its revenues sticking out as a perennial weak spot.

Part of the early 2019 boost came from IBM’s January earnings report which beat analysts’ estimates for both revenue and earnings over its Q4. Yet, for the year, the company’s revenue from cloud-based services grew by 12 per cent, a slowdown from its 2017 growth rate, while total sales also dropped over the fourth quarter.

IBM’s rally to begin 2019 may be reaching its peak, Hurst says.

“The chart is okay and it has had a nice rebound,” says Hurst, portfolio manager and chief investment officer at Equium Capital, to BNN Bloomberg on Wednesday. “It’s actually a perfect chart — if you look at that $140 level, you’re right back up at where you’re going to hit what’s called resistance, where a lot of people that bought halfway through the year and had to weather that whole plunge, they’re look at this and going, ‘Okay, just get me out.’”

And while IBM has diversified its offerings, Hurst still thinks there are better tech options out there.

“We lean a little away from the hardware side of things,” he says. “Within tech, semiconductors has had an interesting resurgence. Its relative strength actually bottomed back in October, which is a very positive thing — notwithstanding that they got pummelled before that.”

“Hardware has really struggled and a lot of that is [attributable to] Apple,” he says. “At this point in time, [IBM] has a buy-back in place, they’re doing the right things and you’re looking at a five per cent yield. So it shouldn’t run you over. But we think that there are greener pastures and that we’d look more in software and services, fintech or something like that.”