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International Business Machines Corporation (NYSE:IBM) is a true Dividend Rock Star. Its yield of 4.7% makes it one of the market’s top dividend payer. In the past ten years, International Business Machines has also grown its dividend from $2 to $6.28. Below, I have outlined more attractive dividend aspects for International Business Machines for income investors who may be interested in new dividend stocks for their portfolio.
What Is A Dividend Rock Star?
It is a stock that pays a reliable and steady dividend over the past decade, at a rate that is competitive relative to the other dividend-paying companies on the market. More specifically:
- Its annual yield is among the top 25% of dividend payers
- It has paid dividend every year without dramatically reducing payout in the past
- Its has increased its dividend per share amount over the past
- It can afford to pay the current rate of dividends from its earnings
- It is able to continue to payout at the current rate in the future
High Yield And Dependable
International Business Machines’s yield sits at 4.7%, which is high for IT stocks. But the real reason International Business Machines stands out is because it has a high chance of being able to continue to pay dividend at this level for years to come, something that is quite desirable if you are looking to create a portfolio that generates a steady stream of income.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. IBM has increased its DPS from $2 to $6.28 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes IBM a true dividend rockstar.
International Business Machines has a trailing twelve-month payout ratio of 65%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 47% which, assuming the share price stays the same, leads to a dividend yield of 5.0%. However, EPS should increase to $12.38, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
International Business Machines ticks all the boxes for what I look for in a dividend stock. If you are looking to build an income focused portfolio, this could be one to include. However, given this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three important factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for IBM’s future growth? Take a look at our free research report of analyst consensus for IBM’s outlook.
- Valuation: What is IBM worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IBM is currently mispriced by the market.
- Other Dividend Rockstars: Are there strong dividend payers with better fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.