IBM Dividend Safety Analysis

IBM has a solid credit rating as well. Standard & Poor’s gives IBM an A rating for its senior long-term debt. Moody’s gives IBM an A2 rating for its senior long-term debt. Both ratings are investment grade at the upper medium grade. This means that IBM has a strong capacity to meet financial commitments.

IBM Dividend Safety - Credit Rating

Source: IBM 2020 Annual Report

Our deep dive into IBM’s dividend safety shows that dividend safety has declined some over the past decade. That is not surprising as IBM has had difficulty generating top line growth and used debt to buy RedHat and revenue growth. However, the metrics indicate that the dividend is not at risk at the moment. Furthermore, IBM’s current management is deleveraging and is reducing total debt and increasing liquidity. This should improve interest coverage and reduce the leverage ratio over time.

Final Thoughts on IBM Dividend Safety Analysis

IBM is a stock that many people love to hate because of the declining top line and rising debt under prior management. The acquisition of RedHat has seemingly made IBM a player in hybrid cloud. Next, the spinoff of Managed Infrastructure Services will refocus IBM on software instead of services. Dividend safety was declining due to weakening earnings and rising debt. But IBM at its core is very profitable and debt is declining. The future IBM will likely have revenue and earnings growth albeit off a lower revenue base. IBM’s dividend is safe at the moment, and management has made statements in strong support of the dividend. I do not believe that IBM’s Dividend Aristocrat status is currently at risk.

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Disclaimer: Dividend Power is not a licensed or registered investment adviser or broker/dealer. We are not providing you with individual investment advice on this site. Please consult with ...

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