The most important quality of a dividend investment is longevity. Nobody cares about a high yield if the company won't be around in a decade or two. But when a generous dividend payer is set up for long-term success, even a modest payout can result in game-changing returns in the long run.
On that note, I'm about to point out a stock that should still be around, relevant, and profitable in 2045 -- and it already pays great dividends. Buying this world-class stock today will set you up for great income streams later on. You can thank me in 20 years or so.
NYSE: IBM
Key Data Points
IBM is built to last
Big Blue has been around for more than a century already. IBM (IBM 2.65%) should certainly have at least a few more decades left in it -- and it's hard to find a stronger dividend policy.
Let's start with IBM's proven and expected lifespan. What started as a maker of electromechanical tabulating machines in 1911 evolved into a pioneer of business-class mainframe computers. IBM also introduced the first PC systems for home use, made artificial intelligence (AI) popular in 1997, and became the world's largest tech consulting company.
In 2025, IBM's long-term bet on AI and cloud computing has started to pay off. Big Blue offers business-grade AI tools with an unmatched commitment to data security and audit-ready information flows. Beyond that, IBM already provides quantum computing services in the cloud. It's a habitual innovator, filing thousands of technology patents every year. More recently, IBM has backed down from its world-leading patent volume to share new technologies with the world in an open-source philosophy instead.
The modern focus on software and services is incredibly profitable. IBM generated $11.9 billion of free cash flows over the last four quarters, based on $62.8 billion in top-line sales. $6.2 billion of these cash profits were handed to shareholders in the form of dividends.
IBM's accelerating dividend story
And that brings me to IBM's investor-friendly dividend commitment. IBM's dividend payouts keep increasing, year by year and through thick or thin. For example, the company had a dry spell in the early 2000s. Revenues swooned and free cash flows started drying up. But IBM didn't cancel its dividends in order to conserve cash on that rainy day.
Instead, it took on $10 billion of additional debt and boosted the payouts by 40%, both in 2007. The annual boosts may be symbolic sometimes, but they keep on coming.
Image source: Getty Images.
What if you'd invested in IBM 20 years ago?
If you bought IBM shares in the summer of 2005, you were looking at a full-year payout of $0.688 per share and an effective yield of 1%. The stock was trading at $73 per share at the time.
Today, IBM pays out $1.68 per share, per quarter. If you're still holding on to those 20-year-old IBM shares, you're enjoying an effective yield of 9.2% on your original investment.
And that lofty percentage doesn't even account for the extra IBM shares you could have bought along the way with an automatic dividend reinvestment plan (DRIP). Let's imagine picking up 14 IBM shares in June 2005 for a total of $1,022.
That position would be worth $7,459 today, which works out to 25.8 shares. (Yes, DRIP programs usually let you buy fractional shares.) The dividend payouts will add up to $173.38 in 2025, with an effective yield of 17% against the original $1,022 investment.
Holding IBM for decades can supercharge your income
IBM is an income investment of game-changing proportions -- paired with fantastic growth prospects in the AI and quantum computing markets. I fully expect this company to stick around for ages, paying increasingly generous dividends along the way. The current dividend yield is 2.3%, which is nearly twice the average yield of S&P 500 (^GSPC +0.19%) components, and far ahead of the starting yield for my hypothetical 2005 investment.
Past results are no guarantee of future performance, but if anything, IBM seems poised to do better in the next 20 years than it did in the last two decades. You can buy this fantastic dividend stock today, enable the DRIP plan, and forget about it for a very long time. The wealth-building magic should keep happening even while you're not paying attention to it.
