International Business Machines (IBM -0.35%) announced today its decision to raise its quarterly dividend, payable June 10 to stockholders of record as of May 8, from $1.62/share to $1.63/share. With this minimal increment, the tech giant joined the list of dividend aristocrats as it increased its cash return to shareholders for the 25th consecutive year.
That decision contrasts with the coronavirus-induced uncertainties that led many companies to reduce -- or even suspend -- their payouts. But during IBM's first-quarter earnings call last week, the new CEO Arvind Krishna had expressed its 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."
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.
Yet following its $34 billion acquisition of the cloud specialist Red Hat in 2019, IBM must still maximize its free cash flow after paying its dividend to reduce its significant $52.3 billion debt load.
Thus, shareholders should not expect any spectacular dividend increase over the next few years. But with a dividend yield above 5.1% at the time of writing, IBM remains an attractive dividend stock that has been rewarding its shareholders without interruption since 1916.
