IBM (NYSE:IBM) was once the most valuable company in the world -- back in the 1980s, when the tech titan dominated the market for mainframe and personal computers. Today, it's been eclipsed by younger tech giants like Apple and Alphabet, but IBM is still a formidable player in information technology. While the stock has struggled in recent years as IBM's transition to a software and services company has taken longer than expected, the company has gained a reputation with investors as a solid dividend payer. It has raised its quarterly payout 17 years in a row, and now offers a strong yield of 3.9%.
Still, you can find better yields elsewhere if you know where to look. Below, three of our contributors explain why Seagate Technology (NASDAQ:STX), AstraZeneca (NYSE:AZN), and Cedar Fair (NYSE:FUN) are better dividend stocks than IBM.
Open up the dividend flood...gate
Rich Smith (Seagate Technology): I make no apologies for being a fan of IBM's Watson computer technology, and I have to say that as a stock, IBM is also pretty hard to beat. Big Blue remains one of the leading computer technology companies of our time, yet sells for only 12.7 times trailing earnings, and pays a generous dividend yield of 3.9%. It's not easy to find stocks of similar quality, with significantly better numbers -- but I have found one: Seagate Technology.
Priced at 15.8 times trailing earnings, Seagate at first glance looks pricier than IBM, but only until you take a look at their relative growth rates. Analysts polled by Yahoo! Finance generally agree that IBM's best growth days are behind it, and it will struggle to grow earnings much faster than 2% over the next five years. In contrast, consensus forecasts call for Seagate to grow earnings at better than 18%, which is fast enough to give the hard-drive specialist a PEG ratio of less than 0.9, versus IBM's PEG ratio of roughly 5.5. (Note: When it comes to PEG ratios, smaller is cheaper -- and better).
Granted, last quarter Seagate only grew its earnings 8% year over year, so it may take some time for that 18% growth to materialize. Meanwhile, though, Seagate's dividend yield of 6% is 50% more generous than IBM's. At that rate, I think investors can afford to wait.
A high-yield pharma play
George Budwell (AstraZeneca): With a forward yield of around 4.4%, the British pharma AstraZeneca sports a richer yield than even International Business Machines Corporation. However, the sustainability of the pharma giant's generous dividend program has lately come under serious scrutiny, for a variety of reasons.
The biggest issue is that CEO Pascal Soriot's projection of double-digit top-line growth doesn't appear to be realistic, due to a handful of key setbacks in immuno-oncology. Last July, for instance, Astra's flagship immuno-oncology drug, Imfinzi, failed to meet its primary endpoint as part of a combo therapy in advanced small-cell lung cancer, potentially wiping billions in sales off the table.
On the flip side of the coin, Astra has still been able to build a respectable stable of new oncology products -- even though its putative star product in this field has yet to live up to expectations. In the recent past, for example, Astra has gained regulatory approvals for Calquence (a blood-cancer medicine), Tagrisso (an inhibitor for cancers with mutated epidermal growth factor receptors), and Lynparza (for advanced ovarian cancer). Imfinzi can also potentially redeem itself in lung cancer next year, if it can extend the survivorship curve in its ongoing trial. So there's no reason to panic just yet.
Down the road, AstraZeneca's eye-popping dividend may have to be pared back, but the final word on its top-notch shareholder rewards program also has yet to be written. The next twelve months will be crucial in determining the fate of Astra's progressive dividend policy. But the company does seem intent on doing everything it can to stave off a reduction, as a service to its loyal shareholders.
The right kind of roller coaster
Jeremy Bowman (Cedar Fair): High-yielding tech stocks aren't easy to find, so investors may want to look further afield than IBM and its peers. One under-the-radar dividend payer I like is Cedar Fair, owner and operator of theme parks including its namesake Cedar Point in Ohio, and more than a dozen others, such as Kings Dominion in Virginia, Great America in California, and Dorney Park in Pennsylvania.
The stock, which offers a dividend yield of 5.1% today, has delivered solid returns for investors. Shares have more than doubled over the last five years; the dividend payout has moved steadily higher as well, doubling in that time, though increases have slowed more recently.
Cedar Fair's business remains solid; the company posted record revenue of $653 million in the key third quarter, as the summer months are by far the company's busiest time of the year. Earnings per share increased 9% in the period to $3.38, bettering estimates of $3.21.
The company also maintained its long-term outlook: to grow adjusted EBITDA at 4% a year, and increase dividends at the same clip. Cedar Fair has a payout ratio of around 100% based on its cash flow, which could present problems if earnings start to fall. But as long as the economy remains strong, Cedar Fair should be able to put up steady growth. Meanwhile, the 5.1% yield should keep investors happy, even if the stock's share appreciation moderates.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. George Budwell owns shares of AstraZeneca. Jeremy Bowman owns shares of AAPL. Rich Smith owns shares of GOOG. The Motley Fool owns shares of and recommends GOOGL, GOOG, and AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends Cedar Fair. The Motley Fool has a disclosure policy.