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IBM: This Big Dividend Tech Stock Yields Over 4 Percent

IBM: This Big Dividend Tech Stock Yields Over 4 Percent
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Friday, 24 August 2018 02:16 PM Current | Bio | Archive

High dividend yields are few and far between in the technology sector. Tech stocks are more commonly associated with growth. But in the past few years, investors have pressured large tech companies to pay dividends to shareholders. As a result, the tech sector is a surprisingly good source of dividend stocks.

Tech giant International Business Machines (IBM) has increased its dividend for more than 20 years in a row. It also offers a 4.3% dividend yield, making IBM a rare high-yield tech stock.

Free Cash Flow Fuels Shareholder Payouts

Perhaps the most appealing aspect of investing in tech dividend stocks is the high level of free cash flow, which supports their generous shareholder payouts. IBM returns a great deal of cash to shareholders each year, through both dividends and share repurchases. For example, IBM returned $9.8 billion to shareholders in 2017 alone, consisting of $5.5 billion in dividends and $4.3 billion of share repurchases. It had the ability to return that much cash to shareholders, because the company generated $13 billion of free cash flow.

IBM is a leader in tech consulting and services. Growth has slowed in recent years, as the company turns itself around. It has divested legacy hardware businesses, and instead has focused on new areas to return to higher growth rates. These growth initiatives include data analytics, mobile, security, and cloud services. This renewed focus has paid off, as IBM’s growth segments now represent nearly half the company’s revenue, and are growing at a high rate.

In the past four reported quarters revenue from IBM’s collection of growth businesses—called the strategic imperatives—reached $39 billion, up 12% from the previous 12-month period. Total cloud revenue in the past four quarters increased 20% to $18.5 billion. This has helped IBM return to growth. In the most recent quarter, revenue of $20 billion increased 3.7% year-over-year. The second quarter represented the third in a row of revenue growth for IBM. Adjusted earnings-per-share increased 5% from the same quarter a year ago.

IBM is working through a turnaround, but the company has durable competitive advantages. The company has a vast intellectual property portfolio. IBM has led the world in U.S. patents earned for 25 years in a row. Last year it set a new record with over 9,000 patents, nearly half of which are in strategic areas such as artificial intelligence, the cloud, blockchain, and other emerging technologies.

High Yield & Dividend Growth In One Stock

IBM currently pays an annualized dividend of $6.28 per share, for a 4.3% dividend yield. IBM has paid a dividend each quarter since 1916, and the company has increased its dividend for 23 years in a row. The most recent increase was a 4.7% raise on April 24.

IBM should continue to increase its dividend each year going forward. The company expects to generate adjusted earnings-per-share of $13.80 in 2018. With a per-share dividend of $6.28, IBM is set to distribute less than 50% of its earnings this year. This leaves plenty of room for continued dividend increases in 2018 and beyond.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
IBM currently pays an annualized dividend of $6.28 per share, for a 4.3% dividend yield. IBM has paid a dividend each quarter since 1916, and the company has increased its dividend for 23 years in a row. The most recent increase was a 4.7% raise on April 24.
ibm, dividend, tech, stock
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2018-16-24
Friday, 24 August 2018 02:16 PM
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