International Business Machines (NYSE:IBM) has time and again proved that they have the potential to generate sustainable growth despite a rapidly changing business environment in the Information Technology industry. While its stock retreated significantly in the last three months after downgrades from big fund managers, it appears like a solid play for dividend investors.
The company has recently increased the quarterly dividend by 7.1%, a 22nd consecutive year of dividend increases.
After the decline of more than 12% in the last three months, IBM stock offers a perfect buying opportunity for dividend investors. Its dividends are also safe, thanks to the company’s potential to generate sustainable growth in revenue and earnings.
Currently, the company has been successfully moving their business model towards cloud, which is resulting in a double-digit growth in cloud revenues.
In the last twelve months, its cloud revenue increased to $14.6 billion, while strategic imperatives revenue surged to $33.6 billion, representing 42% of IBM’s total revenue.
“We continued to make investments in the first quarter to expand our cognitive and cloud platform and we increased our research and development spending,” said Martin Schroeter, IBM senior vice president and chief financial officer.
Its dividend appears safe considering its payout ratio based on income and cash flows. The company expects to generate earnings per share in the range of $12, when its annual dividend will stand about $6 a share. Its free cash flows are also likely to cover the dividend payments. IBM expects its free cash flows in the range of $12 billion, compared to dividend payments of $5.3 billion. Thus, IBM is a solid play for dividend investors and the latest dip offers a perfect buying opportunity.
The author own no shares of IBM.