IBM Stock: Yield, Splits, Prediction, & Dividend Details for 2017
IBM Stock Dividend Outlook
Known as “Big Blue,” International Business Machines Corp. (NYSE:IBM) now pays big dividends. However, one of the reasons behind the impressive yield is the lackluster performance of IBM stock. Is the century-old legacy tech company still worth owning for income investors? Well, in this article, we are going to take a look at IBM’s stock forecast, IBM’s stock dividend outlook, and everything else you need to know about the tech giant from an income investor’s perspective.
Headquartered in Armonk, New York, IBM is a multinational technology company. It was incorporated in 1911 under the name of Computing-Tabulating-Recording Company. The company changed to its current name in 1924.
Over the years, IBM has offered numerous products and services. It has also bought and sold many companies during the process. Today, IBM operates through five segments: Cognitive Solutions, Global Business Services, Technology Services and Cloud Platforms, Systems, and Global Financing.
Here’s what we are going to cover in this article.
- IBM Stock History
- IBM Stock Current Dividend Policy
- IBM Stock Dividend History
- Will IBM Raise Its Dividend?
- IBM Dividend Reinvestment Plan
- What to Expect from IBM in 2017
- IBM Stock Split History
- Will IBM Stock Split in 2017?
#1 IBM Stock History
Like most blue-chip stocks that went public decades ago, early investors of Big Blue have been handsomely rewarded. Most recently though, IBM stock hasn’t really been a hot commodity. The chart below shows the company’s share price performance for the past five years.
Chart Courtesy of StockCharts.com
As you can see, IBM shares are actually trading quite a bit lower than they did five years ago. Note that this is a period in which all three major indices of the U.S. stock market soared past their all-time highs.
#2 IBM Stock Current Dividend Policy
While IBM’s share price performance has been disappointing, the company stands out in a metric that’s of great importance to income investors: dividend yield.
Right now, IBM pays quarterly dividends of $1.50 per share. At the current price, that translates to an annual dividend yield of 4.2%.
To give you some perspective, the average dividend yield of all S&P 500 companies is just 1.92% at the moment. So if an investor purchases IBM stock today, they would be earning more than twice the yield of the average S&P 500 company. (Source: “S&P 500 Dividend Yield,” Multpl.com, last accessed August 15, 2017.)
Of course, because a company’s dividend yield moves inversely to its share price, a high yield could simply be the result of terrible stock price performance. While that’s indeed the case for many of the high-yield stocks in today’s market, IBM’s generous yield also has to do with the company’s efforts to increase its payout. So now, let’s take a look at IBM stock’s dividend history.
#3 IBM Stock Dividend History
The table below shows IBM stock’s dividend history for the past 10 years:
|Declaration Date||Ex-Dividend Date||Record Date||Payment Date||Amount|
Source: “Dividends,” International Business Machines Corp, last accessed August 15, 2017.
In the beginning of 2007, the company’s quarterly dividend rate was $0.30 per share. Today, IBM is paying $1.50 per share. That’s a fivefold increase.
IBM stock’s recent dividend growth history is particularly impressive when you consider what happened in the last financial crisis. The Great Recession at the end of the last decade was considered by many to be the biggest economic downturn since the Great Depression. Businesses were closing down and people were losing their jobs. But even during the height of the recession, IBM was still raising its payout at double-digit pace.
In fact, the company has been increasing its quarterly dividend rate every year for the past 22 years. It is not yet a “dividend aristocrat,” which requires a minimum of 25 years consecutive years of dividend hikes, but it is not far from gaining that title. (Source: “IBM Board Approves Increase in Quarterly Cash Dividend for the 22nd Consecutive Year,” International Business Machines Corp, April 25, 2017.)
What’s even more impressive is that IBM has been paying uninterrupted quarterly dividends since 1916. Just think about that: over the last 100 years, there were two World Wars, numerous technological advancements, and quite a few economic downturns. Tech companies today are doing things people could not even imagine 100 years ago. And yet IBM not only survived, but managed to pay a dividend to investors every three months over the century.
#4 Will IBM Raise Its Dividend?
Given the sizable increase in IBM’s dividends over the years, you might be wondering whether the payout is sustainable. So let’s take a look at its financials.
In 2012, Big Blue generated $104.5 billion in revenue and operating earnings of $15.25 per share. In 2016, IBM’s revenue had declined to 79.9 billion, with operating earnings of $13.59 per share. So based on these two metrics, IBM’s business wasn’t exactly going that well. (Source: “IBM Reports 2016 Fourth-Quarter and Full-Year Results,” International Business Machines Corp, January 19, 2017.)
The thing is, though, the company was still making more than enough money to cover its dividends. In 2016, IBM declared and paid total dividends of $5.50 per share. And since it generated $13.59 in operating earnings per share, IBM had a payout ratio of just 40.5%. This leaves a sizable margin of safety.
Another thing to keep in mind is that dividends are paid in cash. So other than earnings, income investors should also take into account a company’s cash generating ability.
On that front, IBM looks pretty solid. Last year, the company generated free cash flow of $11.6 billion after excluding receivables from its Global Financing segment. Again, this was more than enough to cover its $5.3 billion in dividends paid for the year. In fact, IBM has also decided to spend $3.5 billion to repurchase its shares in 2016. So in total, the company returned $8.8 billion in cash to investors last year.
Therefore, IBM’s dividends appear to be safe, based on last year’s financials. But what about this year?
Well, the company reported earnings last month. In the second quarter of 2017, IBM generated $19.3 billion in revenue, which represented a three percent year-over-year decline after adjusting for exchange rate fluctuations. (Source: “IBM Reports 2017 Second-Quarter Results,” International Business Machines Corp, July 18, 2017.)
While the top-line number doesn’t look cheerful, the company does have something to brag about: its strategic imperatives.
IBM’s strategic imperatives include cloud, security, analytics, social, and mobile technologies. In the second quarter, revenue from strategic imperatives came in at $8.8 billion, representing a seven-percent increase under constant currency. This was driven by a 17% constant currency revenue growth in its cloud segment, which has achieved an annual exit run rate of $8.8 billion.
For the company as a whole, operating earnings came in at $2.97 per share, up one percent from the year-ago period.
For the entire calendar year. The company expects to generate operating earnings of at least $13.80, which would represent a 1.5% increase from last year.
Now, keep in mind that IBM has already increased its dividend earlier this year. At the current rate, the company will pay out $5.9 per share in total dividends for 2017. Given IBM’s forecasted earnings per share of at least $13.80, its dividend is more than safe for this year.
Will IBM raise its dividend?
Well, IBM pays quarterly dividends normally on the 10th of March, June, September, and December. The company reviews its dividend policy once a year, usually in April. Since IBM has raised its dividends for 22 consecutive years, management will likely want to continue its track record. And given the company’s low payout ratio, growing strategic imperatives, and an improving bottom line, it should be able to reward investors with another dividend increase in April 2018.
#5 IBM Dividend Reinvestment Plan
For investors who want to live off the returns from their income portfolios, few things are better than a steadily increasing stream of dividends. But for those that don’t need the income immediately, IBM also offers a solution: a dividend reinvestment plan, or DRIP.
When IBM pays a dividend, the payment is usually deposited directly to the shareholder’s financial institution. But once an investor signs up for IBM’s DRIP, they can ask the company to reinvest a portion or all of their dividends into additional IBM shares. Participants will be paying a fee of two percent of the reinvested dividends, up to a maximum of $3.00 per investment. Investors interested in IBM’s DRIP should contact the company’s transfer agent, Computershare Investor Services.
#6 What to Expect from IBM in 2017
As we saw from the stock chart earlier on, IBM shares haven’t really done that well recently. Year-to-date, the stock is down 13.9%.
One of the things that might have affected IBM stock was Warren Buffett selling some of his stake in the company.
Buffett liked IBM. In fact, Big Blue used to be one of the biggest holdings of Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B). But in May, the “Oracle of Omaha” told CNBC that he has sold approximately a third of his 81-million-share stake in IBM.
“I don’t value IBM the same way that I did six years ago when I started buying,” said Buffett. “I’ve valued it somewhat downward.” (Source: “Warren Buffett has sold IBM shares, and ‘revalued’ tech icon downward, cites ‘big strong competitors’,” CNBC, May 4, 2017.)
However, Buffett is not giving up on the company entirely. Even after the sale, Berkshire still owns 54-million shares of the company, worth around $7.7 billion at the current price. (Source: “Form 13F Information Table,” United States Securities and Exchange Commission, last accessed August 15, 2017.)
Another reason why the market is not that upbeat about IBM is the continued expectation of sales decline. For full-year 2017, Wall Street expects the company to generate $77.76 billion in revenue, which would represent a 2.7% decline from 2016. Earnings, however, are projected to improve from last year’s $13.59 per share to $13.74 per share. (Source: “International Business Machines Corporation (IBM),” Yahoo Finance, last accessed August 15, 2017.)
#7 IBM Stock Split History
With such a long history, it shouldn’t come as a surprise that IBM has split its shares on several different occasions. The table below shows the company’s stock split history:
|Date||Type of Split|
|May 10, 1999||2-for-1|
|May 9, 1997||2-for-1|
|May 10, 1979||4-for-1|
|May 10, 1973||5-for-4|
|May 9, 1968||2-for-1|
|May 3, 1966||3-for-2|
|May 5, 1964||5-for-4|
|May 5, 1961||3-for-2|
|May 5, 1959||3-for-2|
|May 7, 1957||2-for-1|
|May 4, 1956||5-for-4|
|May 7, 1954||5-for-4|
|January 23, 1948||7-for-4|
|January 16, 1946||5-for-4|
|February 16, 1926||3-for-1|
|December 1, 1925||6-for-5|
#8 Will IBM Stock Split in 2017?
Companies usually split their shares after a huge rally. While valuation has to do with a lot more than just share price, a high stock price can make a company look expensive. A stock split reduces a company’s share price, which can make the stock more appealing to small investors when there is a minimum trading parcel.
IBM shares currently trade at around $142.00 apiece. While that’s not exactly a low number, it’s not high, either, compared to other mega-cap tech stocks. Add in the fact that IBM stock hasn’t really performed that well in recent years and investors likely won’t see an IBM stock split in 2017.