If you had asked me for a great dividend stock ten years ago, I wouldn’t even have stopped to think about it. International Business Machines (IBM 2.77%) was the obvious choice for income investors at the time.
IBM was a superstar in 2012. Other companies were lined up to copy Big Blue’s successful business plan, serving as a one-stop-shop for any information technology needs your business might face. The dividend yield was not extremely high. At 1.7%, it was actually among the top six less generous payments on the Dow Jones Industrial Average at the time.
But IBM’s commitment to a high-quality dividend was unquestioned, and somewhat of a big deal. Additionally, the company has fueled these growing payments with ample cash flow. The only reason the performance wasn’t more impressive was that IBM’s stock price had made massive gains from 1995 to 2012. Of all the problems an investment could face, this one is pretty sweet.
IBM data by YCharts
That being said, IBM was at a crossroads in 2012. The company had just installed Ginni Rometty in the CEO’s office, and she had begun to give Big Blue a new direction. This process has been painful and is not yet fully completed, although Rometty has already handed over the CEO baton to cloud computing veteran Arvind Krishna.
The IBM you see today is a very different company from the hardware/software/services giant of 2012. But is Big Blue still a no-brainer dividend investment?
Big Blue’s Recent Dividend History
It turns out that IBM’s dividend accomplishments have continued to pile up over the past decade.
By 2012, the company had increased its payouts every year for 17 years. Now, the unbroken streak of dividend increases has stretched to 27 years, qualifying the stock as a true dividend aristocrat. Admittedly, the increases have been relatively small in recent years, but Big Blue gritted its proverbial teeth and found the money. Token increases in dividends still matter, and annual payouts per share have roughly doubled over the past ten years.
If you had bought IBM stock at the start of its series of aristocratic dividend increases, you would have paid a share-adjusted price of about $22 per share in December 1995. Today, IBM pays dividend checks quarterly totaling $1.65 per year. . The effective yield of these old shares then amounts to 7.5%. That’s not too shabby, and up from an effective return of 3.9% a decade ago.
In total, the payment has increased by 2,540% in 27 years:
IBM Dividend data by YCharts
Is IBM a great income investment for fresh money?
Investors snapping up new IBM shares right now are starting with a respectable 4.8% yield. From this rich payout, you have a head start on long-term income generation.
Now that IBM has moved from a full IT buffet to a leaner specialist in artificial intelligence and hybrid cloud computing, I expect the company to experience impressive growth over the next decade. Once the global economy recovers its feet, IBM should emerge as a leader and highly trusted provider of cloud and artificial intelligence services.
And renewed financial growth will likely inspire another round of more generous dividend increases, like the 2007 to 2020 push that followed the slower increases between 1995 and 2005. The company has a long history of paying shareholder-friendly dividends. and buyouts first, and I don’t expect that philosophy to change.
So yeah, IBM is still a great dividend stock. On the contrary, it only gets better with age. Time and consistent dividend increases are the magic ingredients in this wealth building potion.
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