International Business Machines (NYSE: IBM) announced today its decision to raise its quarterly dividend from $1.62/share to $1.63/share. With this tiny boost, the tech giant joined the list of dividend aristocrats, S&P 500 companies that have increased cash dividends to shareholders for 25 straight years.
That decision contrasts with the coronavirus-induced uncertainties that have led many companies to reduce -- or even suspend -- their payouts. During IBM's first-quarter earnings call last week, new CEO Arvind Krishna expressed his commitment to the dividend, thanks to the company's strong free cash flow.
Today, he confirmed in a press release: "IBM's free cash flow and our strong balance sheet give us confidence to both invest aggressively in cloud and AI technologies, while also returning value to our shareholders."
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Debt vs. dividends
That meager 0.6% dividend increase remains symbolic, though. It represents an extra annual cash outflow of $35 million that pales in comparison to the company's trailing-12-month free cash flow and dividend of $11.6 billion and $5.8 billion, respectively.
However, following its $34 billion acquisition of the cloud specialist Red Hat in 2019, IBM must still maximize free cash flow to reduce its significant $52.3 billion debt load.
As a result, shareholders should not expect any spectacular dividend increase over the next few years. Nevertheless, with a dividend yield above 5.1% at the time of this writing, IBM remains an attractive dividend stock that has been rewarding its shareholders without interruption since 1916.
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Herve Blandin owns shares of IBM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
