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IBM Becomes a Dividend Aristocrat, Increasing Its Dividend for the 25th Consecutive Year

By Herve Blandin – Updated Apr 28, 2020 at 4:30PM

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Management remains confident the tech giant's free cash flow will cover the dividend amidst coronavirus-induced uncertainties.

International Business Machines (IBM -1.07%) announced today its decision to raise its quarterly dividend from $1.62/share to $1.63/share. With this tiny boost, the tech giant joined the list of dividend aristocrats, S&P 500 companies that have increased cash dividends to shareholders for 25 straight years.

That decision contrasts with the coronavirus-induced uncertainties that have led many companies to reduce -- or even suspend -- their payouts. During IBM's first-quarter earnings call last week, new CEO Arvind Krishna expressed his commitment to the dividend, thanks to the company's strong free cash flow. 

Today, he confirmed in a press release: "IBM's free cash flow and our strong balance sheet give us confidence to both invest aggressively in cloud and AI technologies, while also returning value to our shareholders."

Dividends on top of a piggy bank.

Image source: Getty Images.

Debt vs. dividends

That meager 0.6% dividend increase remains symbolic, though. It represents an extra annual cash outflow of $35 million that pales in comparison to the company's trailing-12-month free cash flow and dividend of $11.6 billion and $5.8 billion, respectively.

However, following its $34 billion acquisition of the cloud specialist Red Hat in 2019, IBM must still maximize free cash flow to reduce its significant $52.3 billion debt load.

As a result, shareholders should not expect any spectacular dividend increase over the next few years. Nevertheless, with a dividend yield above 5.1% at the time of this writing, IBM remains an attractive dividend stock that has been rewarding its shareholders without interruption since 1916.

Herve Blandin owns shares of IBM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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