Dividend Aristocrats: International Business Machines

For the 2021 Dividend Aristocrats In Focus series, first up is International Business Machines (IBM). Last year, IBM raised its dividend for the 25th year in a row, making it one of the newest members of the Dividend Aristocrats.

IBM has struggled through a prolonged turnaround effort in the past few years. The company has invested heavily in new areas such as artificial intelligence, data, and cloud services while attempting to divest slow-growth legacy businesses. These efforts have had mixed results, as the company is still having difficulty returning to growth.

However, IBM has continued to raise its dividend each year. With a high dividend yield above 5% and consistent dividend increases each year, IBM stock could be viewed favorably by income investors.

Business Overview

IBM is a global information technology company that provides integrated enterprise solutions for software, hardware, and services. In the services business, IBM is the world’s largest IT provider with 5.5% market share. In software, IBM’s software business is mostly middleware, which is the software layer that connects applications and devices to each other.

In hardware, IBM sells the z15 mainframes, storage, and the Power-based servers. The company has five business segments: Cloud & Cognitive Software, Global Business Services, Global Technology Services, Systems, and Global Financing.

On January 21st, IBM reported fourth-quarter and full-year financial results. For the fourth quarter, revenue of $20.4 billion declined 6% year-over-year, or 8% adjusting divested businesses and currency fluctuations.

Source: Investor Presentation

The company absorbed a pre-tax charge of $2.04 billion resulting from restructuring actions taken during the fourth quarter. As a result, quarterly diluted earnings-per-share from continuing operations declined 66% from the same quarter last year.

For the full year, revenue of $73.6 billion declined 4% adjusting for divested businesses and currency. Diluted earnings-per-share from continuing operations was $6.13 compared to $10.57 in 2019, a decline of 42% for 2020. IBM’s disappointing EPS performance was due largely to the one-time charge as well as the impact of the coronavirus pandemic.

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William K. 1 month ago Member's comment

Interesting point of view, which I question a bit. IBM is not losing by any interpretation, instead the complaint is "lack of growth," which sounds to me like speculators screaming "More, More, More!"

Totally ignoring very respectable and consistent dividends and demanding increases in share price smells a lot like greed from where I stand. And constantly changing the direction is always a bit risky, since much of the future is not so very obvious to us.

Of course, it seems that those loud shareholders demanding growth, no matter what the risk, do have the ear of the board. But folks do need to keep in mind that with every gamble there is a risk of losing. As we are repeatedly reminded, "Past performance does not guarantee future performance."