Valuation And Dividend Safety Analysis: International Business Machines (IBM)

IBM Corp (NYSE: IBM) was a growth stock, but today the main interest is the dividend yield. Currently, IBM yields over 5%. Very few stocks that are not REITs, MLPs, or BDCs, have a yield this high. Further, IBM recently raised the regular cash dividend for the 25th consecutive year making it a new Dividend Aristocrat. At a time when many companies are cutting or suspending their dividends, this is a positive sign.

There are only about 65 Dividend Aristocrats at the moment making this a select group. IBM Corp is one of the few stocks with a yield this high but still decent dividend safety metrics. But still there is some risk as revenue has been declining for years and debt is up due to the RedHat acquisition. In addition, there is a new CEO, which adds some uncertainty. However, I view the stock as long-term buy for those seeking income and dividend growth.

Overview of IBM Corp

IBM Corp is a global information technology company that provides enterprise solutions for software, hardware, and services. IBM’s focus is large, multi-national customers and governments, for which it runs mission critical systems. In the services business, IBM is the world’s largest IT provider.

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And 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 also has over 90% market share in mainframes. IBM is in the midst of major changes. The company recently bought RedHat for $34 billion and installed a new CEO. IBM generated annual revenue of ~$77B in 2019. IBM operates in very competitive market segments. Some competitors include Microsoft (MSFT), Amazon (AMZN), HP Inc (HPQ), Hewlett-Packard Enterprise (HPE), and others.

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Disclosure: I am long IBM.

Disclaimer: The opinions in this article are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the ...

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