IBM (IBM) Dividend Stock Analysis


IBM Dividend

(updated 4/01/2017)

IBM (IBM) has paid a dividend since 1913 and increased its dividend for 21 consecutive years; qualifying the company as a Dividend Contender.

Price: $174.14
Current Dividend: $5.60

Dividend Yield: 3.2%
Cash Dividend Payout Ratio: 41%

Market Capitalization: 164 B
Enterprise Value: 198 B

IBM Logo


Sector: Technology
Industry: Information Technology Services

IBM is in the process of reinventing itself by shedding older low margin businesses and investing heavily in big data. Business analytics, enterprise IT, the cloud, mobile technologies, and security are all part of the new emphasis of the modern IBM.

Powerful analytics make data useful and the new “natural resource” of business. Enterprises of all types are seeking a competitive advantage by converting data into insights and actions that add value.

IBM is spending billions on research & development and acquisitions to move quickly into these growing segments. A major part of the core of this strategy is IBM Watson. IBM describes Watson as “a technology platform that uses natural language processing and machine learning to reveal insights from large amounts of unstructured data.

The business model is to use IBM’s global capabilities, expertise, and innovation to provide integrated services and solutions for customers. Their mission is to provide clients the technology (mobile, social, cloud, security, etc.) to interact, engage, and analyze data.

The Buffett Factor

Investors should not make investment decisions based solely on who else owns it. However, it definitely should add confidence to know Warren Buffet not only owns the stock, but it is his 3rd largest holding.

I’m more interested in what he is buying now than what he holds in his portfolio from purchases years ago. The fact that he is buying it now demonstrates that he believes it is a good long term value today.

SWOT Analysis For IBM


Part of IBM’s moat is its long and successful customer relationships and revenues that are recurring or “annuity like”. This is providing the company the ability to transition customers from old lower margin businesses to new higher margin, higher growth products and services.

The company has been able to use its large free cash flow to invest heavily in the future (R&D and acquisitions) as well as buy back significant amounts of its own stock (approx. 37% in 10 years).


IBM’s old mainframe business is in a long term decline. The company’s 10 year revenue growth is negative.


Innovation and new products are a tradition at IBM. The company consistently tops the annual list of U.S. patent beneficiaries.

IBM’s long term customer relationships, stellar reputation for products and services, and ability to manage complex systems allow the company to gravitate to higher margin and higher value relationships.


The new data and analytics businesses have plenty of competition from small companies and large companies such as Oracle, Cisco, and Intel.

Dividend Analyzer Checklist

(updated January 2017)

Dividend Safety Score (17/33 points)

Dividend Per Share (ttm):  $5.40
Dividend Payout Ratio (ttm):  44%
Dividend Per Share (10 Year Growth)   20.4%
Cash From Operations (CFO) Per Share (ttm):  $19.28
CFO Dividend Coverage (CFO / DPS):   3.6  (4/6 points)
Free Cash Flow (FCF) Per Share (ttm):  $15.02
FCF Dividend Coverage (FCF / DPS):   2.8  (5/6 points)
Net Financial Debt:  $32515  M
Total Assets:  $115606 M
Net Financial Debt / Total Assets:  28%  (5/12 points)
Net Financial Debt to EBITDA (ttm):  245%
Total Liabilities to Assets Ratio (Qtr.):  85%
Piotroski Score (1-9) (TTM): (3/9 points)

Profitability & Growth Score (17/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%:  -1.1%   (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%:   10.6%   (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%:   1.3%   (0/6 points)
Operating Earnings Yield (ttm):   8.2%    (5/7 points)
Net Income (ttm):   $11834 M
Gross Profit (ttm):   $38807  M
Total Assets:  $115606 M
Gross Profitability Ratio = GP / Total Assets:   34%  (8/12 points)
Cash Return On Invested Capital (CROIC)(tttm):   25%
Return on Invested Capital (ROIC):  21%
Return on Invested Capital (ROIC) (5 Year Median):  28%
Return on Invested Capital (ROIC) (10 Year Median):  27%

Valuation Score (25/34 points)

Free Cash Flow Yield (ttm):  9.0%   (9/9 points)
EV to EBIT (ttm):   14.7  (5/9 points)
EV to EBITDA (ttm):   11.1  (5/9 points)
PE10:   13.5    (6/7 points)
Price to Sales Ratio (ttm):  1.9
Price to Book Value (ttm):  8.9
Price to Earnings Ratio (P/E) (ttm):  13.0

TOTAL POINTS – (59/100) (50 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

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(updated January 2017)

IBM is ranked #59 (out of 246) overall and #6 (out of 16) in the Technology Sector by the Dividend Analyzer.

The the fact that the company has experienced negative revenue growth and almost non-existent cash from operations growth the past 10 years cost the company 10 points in the Profitability & Growth Score. If you believe the next 10 years will be more positive you can assume that their score is lower than it ought to be.

Type of Investor / Recommendation

Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure in Technology Sector /  Should be Considered
Deep Value Investors / Consider Buying on Price Dips

Portfolio Position Disclosures:
DVB Foundation Portfolio – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None

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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.