We love IBM’s 3.6% yield and the stellar share price performance

For 2024, we’ve selected IBM as one of our top picks for dividend investors.

The company is a market leader and has a long history of regular income payments, even during economic downturns. That cuts your risk. New investments in the business should also continue to spur its growth for years to come.

Even more promise is shown by the share price performance: the company has returned 43.4% over the last year, yet the stock trades at a reasonable 18.4 times the company’s 2024 earnings forecast.

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IBM Corp. (New York symbol IBM; www.ibm.com) is near new highs after releasing its latest results. The company is a top pick for 2024.

In the past few years, IBM has shifted its focus to its more-profitable cloud computing, consulting and mainframe businesses. It now gets over 75% of its revenue from software and consulting services.

The company is one of the world’s largest computer firms, with operations in over 175 countries.

In the three months ended December 31, 2023, IBM’s revenue rose 4.6%, to $17.38 billion from $16.69 billion a year earlier. That beat the consensus forecast of $17.30 billion.

Revenue rose at all three of IBM’s main divisions: software (up 3.1%), consulting (up 5.8%), and mainframe computers and other hardware (up 2.7%). If you exclude exchange rates, revenue in the quarter rose 3.3%.

Blue Chip Stocks: IBM’s earnings rise comfortably and beat estimates too

Earnings before unusual items also gained 8.8%, to $3.59 billion from $3.30 billion. Due to more shares outstanding, per-share earnings rose at a slower pace of 7.5%, to $3.87 from $3.60. That also beat the consensus estimate of $3.78.

The higher earnings growth is largely due to a plan to improve productivity. These initiatives should cut $3 billion from the company’s annual costs by the end of 2024.

IBM still expects its overall revenue (excluding currency rate movements) will rise roughly 5% in 2024.

The higher revenue and cost savings should lift IBM’s free cash flow (regular cash flow less maintenance capital expenditures) to $12.0 billion in 2024, up from $11.2 billion in 2023. That should let the company keep raising your dividend.

The stock trades at 18.4 times IBM’s projected 2024 earnings of $10.08 a share. That’s a low p/e considering the company continues to earmark a high 11% of its revenue to research and is adding artificial intelligence features to its software products. The stock yields a solid 3.6%.

The company’s dividend has grown an average 1.1% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Above Average. The company has paid regular dividends since 1916 and has increased the annual rate each year for the past 28 years.

Recommendation in Canadian Wealth Advisor: IBM Corp. is a buy.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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