You Probably Didn't Know This About International Business Machines Corp. Dividends

IBM's commitment to strong dividends is only matched -- and far surpassed! -- by its hunger for massive share buybacks.

May 9, 2014 at 2:00PM

IBM (NYSE:IBM) pays a lot of attention to its dividend. Over the last 10 years, Big Blue has increased its quarterly payouts by 510%. Every Dow Jones (DJINDICES:^DJI) component pays a dividend nowadays, but few can match IBM's commitment to giving back to shareholders.

The company's stock price doubled over the same period, taking some of the bite out of IBM's dividend yield. But a share price that rises too quickly is a nice problem to have.

IBM Chart

IBM data by YCharts.

However, IBM shares are not all wine and roses for income investors. Those payout boosts didn't come easy.

The rising dividend payouts represent a growing portion of IBM's free cash flow. The intertwined lines on this next chart are almost eerie:

IBM Cash Dividend Payout Ratio (TTM) Chart

IBM Cash Dividend Payout Ratio (TTM) data by YCharts.

Big Blue has a long history of generous dividend improvements, matched by an even larger dose of share buybacks. Since 2000, the company has spent $30 billion on dividend checks and $108 billion on share repurchases.

At times, the company has even borrowed money just to light a bigger fire under these shareholder-friendly policies. In the second quarter of 2007, IBM took out a massive $12 billion debt load (on top of its existing $23 billion in long-term debt) only to dump all the proceeds into buybacks. At no point did IBM's buybacks force it to slow down its dividend payments or even the pace of payout growth.

Ibmlogo

Image source: IBM.

Now, the second chart above isn't exactly terrifying. IBM's cash payout ratio is rising, but it still has plenty of headroom for future increases.

That might mean slowing down those sprightly buyback plans, though -- or maybe taking on even more debt to keep the two parties going. Over the last four quarters, IBM spent $18.4 billion on buybacks and $4.1 billion on dividends, exceeding the $12.5 billion in free cash flow. That means dipping into cash reserves or other capital sources.

IBM isn't likely to slow down its dividend growth anytime soon, but the buybacks might need a breather. Keep that in mind if you were hoping for a huge buyback benefit over the next few years.

Meet the top dividend stocks for the next decade
IBM is onto something here. The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers