Dividend Aristocrats In Focus: International Business Machines

Up to date on March twenty fifth, 2024 by Bob Ciura

Yearly, we evaluation every of the Dividend Aristocrats, the group of corporations within the S&P 500 Index with 25+ consecutive years of dividend will increase.

To develop into a Dividend Aristocrat, an organization should possess sturdy aggressive benefits and a gentle enterprise mannequin that generates yearly earnings, even throughout recessions.

Nevertheless it should even have a shareholder-friendly administration crew devoted to sustaining constant dividend will increase annually.

We have now compiled an inventory of all 68 Dividend Aristocrats and essential monetary metrics equivalent to price-to-earnings ratios and dividend yields. You may obtain the total listing by clicking on the hyperlink beneath:

Disclaimer: Positive Dividend shouldn’t be affiliated with S&P International in any approach. S&P International owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet is predicated on Positive Dividend’s personal evaluation, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the data on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official data.

Subsequent up within the Dividend Aristocrats In Focus sequence is Worldwide Enterprise Machines (IBM). IBM has elevated its dividend for 29 years in a row.

IBM has turned itself round up to now few years by investing in new areas equivalent to synthetic intelligence, knowledge, and cloud providers which have returned the corporate to development.

In flip, IBM shares have rallied 47% up to now 12 months, far outpacing the S&P 500 Index efficiency. This text will focus on IBM’s present enterprise mannequin, future development prospects, and whether or not we see the inventory as a purchase proper now.

Enterprise Overview

IBM’s focus is operating mission essential techniques for big, multi-national clients and governments. It sometimes supplies end-to-end options. IBM spun off Kyndryl, its managed infrastructure enterprise, in 2021 however remains to be one of many largest IT providers corporations on the planet.

The corporate now has 4 enterprise segments: Software program, Consulting, Infrastructure, and Financing. IBM had annual income of ~$61.9B in 2023.

IBM reported fourth-quarter and full-year outcomes on January twenty fourth, 2024. For the quarter, company-wide income rose 4% to $17.38 billion whereas diluted adjusted earnings per share climbed 8% to $3.87 on a year-over-year foundation. Diluted GAAP earnings per share elevated 13% to $3.54 within the quarter.

Supply: Investor Presentation

Software program income elevated 3.1% to $7.5 billion resulting from 2% development in Hybrid Platform & Options and a 5% improve in Transaction Processing. Income was up 8% for RedHat, 1% for Automation, and 1% for Information & AI.

Consulting income elevated 6% to $5,048M from $4,770M resulting from 5% rise in Enterprise Transformation, +4% improve in Expertise Consulting, and 6% development in Utility Operations. The book-to-bill ratio is a wholesome 1.15x.

Progress Prospects

IBM engineered a profitable turnaround up to now few years, and there are indicators rising that IBM’s turnaround is gaining traction.

Its precedence is to develop into a pacesetter in synthetic intelligence and hybrid cloud options. It has invested aggressively in these areas, such because the $34 billion acquisition of Purple Hat in 2019.

IBM sees the hybrid cloud as a $1 trillion market and its most important alternative to return to development sooner or later.

In 2023, IBM continued its behavior of frequent tuck-in acquisitions. IBM acquired software program firm Apptio for $4.6 billion, increasing its AI choices. The corporate adopted that up with the acquisitions of StreamSets and webMethods. IBM has acquired 30+ corporations underneath the current CEO.

IBM forecasts income development within the mid-single-digits and free money move of about $12 billion in 2024. We count on 4% annual EPS development for IBM over the following 5 years.

Aggressive Benefits & Recession Efficiency

IBM has enjoys significant aggressive benefits, primarily its trade management place and scale. IBM’s aggressive energy is its model, entrenched buyer relations and intensive patent portfolio. IBM can also be the market chief in mainframe computer systems the place it has 90% of the market and little competitors.

By way of recession efficiency, IBM receives blended evaluations. As a world expertise firm, IBM is uncovered to the fluctuations of the broader economic system.

For instance, in 2020, the corporate’s income and earnings-per-share declined as the worldwide economic system fell into recession because of the coronavirus pandemic.

That stated, IBM carried out comparatively effectively within the Nice Recession of 2008-2009. IBM’s efficiency throughout that recession is listed beneath:

2008 earnings-per-share: $8.93
2009 earnings-per-share: $10.01 (12% improve)
2010 earnings-per-share: $11.52 (15% improve)
2011 earnings-per-share: $13.06 (13% improve)

It’s fairly spectacular that IBM was capable of develop its earnings-per-share in annually of the Nice Recession. Furthermore, the dividend saved rising as effectively.

Whereas the corporate’s recession efficiency was not as robust in 2020, it did stay extremely worthwhile, which allowed it to maintain its dividend improve streak alive.

Valuation & Anticipated Returns

Based mostly on our 2024 estimate of $10 in earnings-per-share, and the present inventory worth of $188, shares of IBM commerce at a price-to-earnings ratio of 18.8.

The inventory trades above our truthful worth P/E estimate of 13.0. The affect of a declining valuation a number of might scale back annual returns by 7.1% per 12 months over the following 5 years. Subsequently the inventory appears to be considerably overvalued proper now.

These adverse returns might be offset by earnings-per-share development and dividends. As beforehand talked about, we count on 4% annual EPS development by means of 2029.

As well as, the inventory has a present dividend yield of three.5%. General, we estimate whole returns at 0.4% per 12 months over the following 5 years.

The inventory worth has risen shortly on higher efficiency and AI optimism, and is now close to a decade-high. The low charge of return is because of the overvaluation of the shares proper now.

Closing Ideas

In 2021, IBM was inducted to the distinguished Dividend Aristocrats listing. IBM has continued to lift its dividend annually resulting from its regular development and powerful free money move.

IBM’s monetary efficiency is bettering, and the corporate is deleveraging. It ought to be capable to proceed elevating its dividend annually.

That stated, the inventory seems to be overvalued resulting from its share worth rally over the previous 12 months. The low anticipated returns make the inventory a promote in our view.

If you’re taken with discovering high-quality dividend development shares appropriate for long-term funding, the next Positive Dividend databases might be helpful:

The key home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: