All those share repurchases are weighing on IBM’s balance sheet. “Total debt climbed to $44 billion in the second quarter, up from $39.7 billion a year ago. IBM had a cash balance of $9.7 billion at the end of the period, down from $10.4 billion,” according to Bloomberg.
To that end, IBM would appear to be an unlikely addition to SYLD and potentially vulnerable to removal TTFS. It must be noted that is just speculation on our part, but TrimTabs, the subadvisor for TTFS, has said it prefers companies that use free cash flow to repurchase stock over those that issue debt to do so. [A Look at the Float Shrink ETF]
IBM’s credit rating is firmly in investment-grade territory, but the debt expansion and free cash reduction do not bode well for the stock’s potential admission to SYLD. IBM’s free cash flow surged in the second quarter, which could help solidify its place in TTFS, but a slowing pace of buybacks could also make it harder to reach the 5% reduction necessary to enter PKW.
Said another way, IBM is one of the most voracious share repurchasers among U.S. companies, but even that may not be enough to grow the stock’s buyback ETF footprint.
Cambria Shareholder Yield ETF
Tom Lydon’s clients own shares of Apple and TTFS.