In a recent analysis on dividend aristocrats, International Business Machines Corporation (IBM) is under scrutiny as one of the worst dividend stocks among its peers. IBM, a technology company based in New York, specializes in artificial intelligence, automation, and hybrid cloud solutions. Despite declaring a 0.6% increase in its quarterly dividend to $1.67 per share, marking the 29th consecutive year of dividend growth, IBM has faced challenges in revenue growth in recent years. The company has been slow in increasing its dividends, with an average annual growth rate of 1.9% over the past five years. Furthermore, IBM’s revenue has been negatively impacted by declines in its consulting, financing, and infrastructure businesses. Even after significant acquisitions such as Red Hat for $34 billion in 2019, IBM’s revenue growth has been lackluster.
Diamond Hill Capital noted these challenges in its investor letter, pointing out fundamental headwinds affecting IBM’s software and consulting businesses. Despite making AI a focus since Arvind Krishna became CEO in 2020, IBM’s debt position has raised concerns among income investors. The company’s debt grew to $59.5 billion in the first quarter of 2024, with a debt-to-equity ratio of 2.7. Additionally, IBM’s payout ratio is relatively high at 66.8%. While the stock reached a historic high of around $206 per share in 2013, it has failed to reach that level again, hovering below $200 in recent years.
Analysts have maintained a consensus Hold rating on IBM, ranking it among the worst dividend stocks in the list of dividend aristocrats according to Wall Street analysts. Despite holding stakes valued at over $1 billion in the company, some hedge funds have reduced their positions in IBM. Overall, IBM holds the tenth spot on the list of worst dividend stocks to buy, highlighting concerns over its slow revenue growth, high debt levels, and payout ratio.
While IBM shows potential as an investment, some AI stocks are considered more promising in terms of generating higher returns. With the belief that certain AI stocks offer better opportunities for growth and performance in the short term, investors may consider exploring alternatives within the sector. For more insights on dividend aristocrats and stock recommendations, investors can refer to additional resources such as the list of The 20 aristocratic stocks with the worst dividends according to analysts.
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