The Company in a Nutshell
- IBM is overpromising and under delivering; this popular dividend stock has blindsided investors.
- IBM customers have been more loyal than expected, but revenue growth has been stagnant.
- There are a number of better opportunities available in the tech sector.
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What the CEO said: What we say:Investment Thesis
Hybrid clouds with artificial intelligence technology are being used in an attempt to compensate for IBM’s declining core business model. This new revenue stream is still unstable, and IBM continues to disappoint the market. Considering the many alternatives in the tech sector, an investor is better off investing in Microsoft, which quickly became profitable in the cloud business. However, at a 4-5% yield, one may be willing to sacrifice growth in the name of higher income. Make no mistake, while the company maintains its dividend growth streak, the increase remains mediocre ($0.01/share per year for 4 years). The issue is that IBM’s core business is still slowing as the shift towards cloud computing continues and other players are performing better. IBM is relying on its shipping blockchain-based solutions to provide additional growth as it is hard to replicate. In early 2024, IBM is on the rise as it seems to be well-positioned to see increased demand for its software and consulting services as a growing number of enterprises look to adopt AI tools to boost productivity. An investor’s dividend is safe and will continue to increase, but be weary of expecting much more from this investment.Dividend Triangle
5-Yr Rev. Growth | 0.00 % |
5-Yr EPS Growth | 0.00 % |
5-Yr Div Growth | 0.00 % |
Potential Risks
IBM is an aging company that has struggled to stay ahead of its peers. With no real business growth, difficulties remaining competitive, and large debt all siphoning future money away from its cash reserves, even a few good quarters may not change the business and do not justify such a high stock price. IBM continues to struggle to grow even as it takes on the cloud business and artificial intelligence. The market got excited at the beginning of 2024 with the new buzz word, but IBM reported revenue growth of 4% for Q4 2023. In addition, the shift to cloud-based solutions also reduces IT needs for IBM’s clients. Therefore, this inevitable change in technology in the business will continue to eat away at what used to be IBM’s core business. There are simply better opportunities in the tech sector.
Debt/Equity | 0.00 |
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Credit Score | 0 |
Dividend Growth Perspective
On the dividend front, one could argue that buying IBM shares at a 3-4% yield is a unique opportunity. The problem is that IBM is buying back shares and increasing its payout to seduce income-seeking investors. As shares are being bought back and dividends are being raised, management is not following its earnings growth, even though IBM previously offered investors generous dividend increases year after year. IBM increased its dividend from $1.40 in 2016 to $1.62 in 2019. However, over the past five years, management has reduced its dividend growth to $0.01/share per year, which is not a good sign. While the situation seems to get better, IBM announced another $0.01/share increase in 2024…. Instead, we would direct our time and money to other real tech companies.
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Valuation
(Data for `ddm_recent_annual_dividend` field are missing to build DDM tables)
Video Tutorial: How to Read the Stock Cards DDM Valuation
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- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.