International Business Machines (NYSE:IBM) Is Increasing Its Dividend To $1.68

The board of International Business Machines Corporation (NYSE:IBM) has announced that the dividend on 10th of June will be increased to $1.68, which will be 0.6% higher than last year's payment of $1.67 which covered the same period. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

We've discovered 5 warning signs about International Business Machines. View them for free.

International Business Machines' Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, International Business Machines' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise by 78.5% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 64% which would be quite comfortable going to take the dividend forward.

Check out our latest analysis for International Business Machines

International Business Machines Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $4.40 total annually to $6.68. This implies that the company grew its distributions at a yearly rate of about 4.3% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. In the last five years, International Business Machines' earnings per share has shrunk at approximately 9.9% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On International Business Machines' Dividend

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 has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 5 warning signs for International Business Machines that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.