Today we received a dividend payment from IBM in the amount of $99.89 ($1.40 X 71.35 shares) which we used to purchase additional IBM shares, or in this case about 2/3 of an IBM share. What’s notable about this payment is that IBM gave us a raise of +7.69%. While that may sound pretty significant, it pales in comparison to IBM’s tremendous track record of growing dividends over the years as seen below:
Here are the last 5 dividend raises given by IBM:
- 2016: +7.69%
- 2015: +9.10%
- 2014: +15.77%
- 2013: +11.76%
- 2012: +13.33%
Dividend growth is slowing for IBM, make no mistake. However is this slowdown because they are unable to increase the dividend because they don’t have the money or because they are using it for investments and share buybacks? One way to tell is by looking at the payout ratio for IBM which can be seen below:
The spike we see in the payout ratio seems to be linked to the slowdown in dividend growth. Should this be a cause for concern? Well the first thing to note here is that even with a payout ratio of 50%, you still have a buffer to increase dividend payments for quite some time before having to worry. If we take last year as an example, IBM invested more than 6 percent of their revenue in R&D and about $4 billion in capital expenditures. They also announced 15 acquisitions. All that R&D spending translates into more patents granted to IBM yearly than any other company on the planet.
Everyone is quick to fault IBM for their turnaround strategy taking too long. There are plenty of debates on Seeking Alpha form each side of the camp as to whether or not IBM will eventually turn itself around but we simply see such discussions as background noise. Our Q-Score Methodology tells us that at the moment IBM is the highest ranked stock in our entire universe with a Q-Score of 22.25, mainly because they have such strong historical dividend growth performance:
And here are the actual numbers that are driving our Q-Score:
While we’re mildly curious to hear about how IBM’s strategic initiatives are coming along, we’re not that worried. We just received a raise of +7.69% which is more than double the raise we received on our last “comp day” at the prestigious finance firm we work at during our day jobs where “people are our greatest asset”. It seems pretty certain that IBM will be able to keep growing dividends into the future safely and that’s what we care about most.