International Business Machines (NYSE:IBM) 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."
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.