We received $111.22 (77.4429 shares x $1.40) from International Business Machine Corp (IBM). This is that last quarter that IBM will be paying dividends at $1.40 per share. We are expecting the dividends will increase by next quarter. In 2016, the IBM’s stock price increases by +30% as investors has seen that the firm is moving away from its traditional business (hardware and software business) to other technology business (cloud and analytics). IBM posted strong revenues from its cloud, analytics and mobile and security business but has reported weak revenue from its traditional business. IBM ended 2016 with US$11.9bn in net income, down by -10% YoY.
As the stock price increases, the dividend yield of IBM decreases. The dividend yield is +3.2%. Since Q42015, the dividend yield has a downward trend. Despite a declining dividend yield, we are expecting that there will be an increase in dividends in the next quarter.
The dividend payout ratio is 0.40. The high dividend payout ratio is due to weak earnings. IBM has been increasing dividends since 1995, thus, we are still expecting an increase in dividends by next quarter; however, because the dividend payout ratio is too high versus its historical payout ratio, the dividend growth rate might be small.
Based from our analysis, IBM has been strategic in growing its business by diversifying its revenue streams away from its traditional business, thus, we will still be expecting a continuous increase in dividends payments in the near future. However, we expect that the increase might only be between +7% to +10% dividend growth rate in the next quarter due to the high dividend payout ratio.