In This Article:
International Business Machines Corporation's ( NYSE:IBM ) dividend will be increasing to US$1.65 on 10th of June. This makes the dividend yield 4.96%, which is above the industry average.
Check out our latest analysis for International Business Machines
International Business Machines Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 119% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 69%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
The next 12 months is set to see EPS grow by 32.6%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 175%, which probably can't continue putting some pressure on the balance sheet.
International Business Machines Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from US$3.00 to US$6.56. This implies that the company grew its distributions at a yearly rate of about 8.1% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend Has Limited Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 15% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think International Business Machines' payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think International Business Machines is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for International Business Machines that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of 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.