Up to date on March twenty fifth, 2024 by Bob Ciura
Yearly, we overview every of the Dividend Aristocrats, the group of firms within the S&P 500 Index with 25+ consecutive years of dividend will increase.
To develop into a Dividend Aristocrat, an organization should possess sturdy aggressive benefits and a gradual enterprise mannequin that generates yearly earnings, even throughout recessions.
Nevertheless it should even have a shareholder-friendly administration staff devoted to sustaining constant dividend will increase annually.
We’ve compiled an inventory of all 68 Dividend Aristocrats and essential monetary metrics resembling price-to-earnings ratios and dividend yields. You may obtain the total checklist by clicking on the hyperlink under:
Disclaimer: Positive Dividend is just not affiliated with S&P World in any method. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Positive Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official knowledge from S&P World. Seek the advice of S&P World for official data.
Subsequent up within the Dividend Aristocrats In Focus sequence is Worldwide Enterprise Machines (IBM). IBM has elevated its dividend for 29 years in a row.
IBM has turned itself round previously few years by investing in new areas resembling synthetic intelligence, knowledge, and cloud providers which have returned the corporate to progress.
In flip, IBM shares have rallied 47% previously 12 months, far outpacing the S&P 500 Index efficiency. This text will talk about IBM’s present enterprise mannequin, future progress prospects, and whether or not we see the inventory as a purchase proper now.
Enterprise Overview
IBM’s focus is operating mission crucial techniques for giant, multi-national prospects and governments. It sometimes supplies end-to-end options. IBM spun off Kyndryl, its managed infrastructure enterprise, in 2021 however remains to be one of many largest IT providers firms on the earth.
The corporate now has 4 enterprise segments: Software program, Consulting, Infrastructure, and Financing. IBM had annual income of ~$61.9B in 2023.
IBM reported fourth-quarter and full-year outcomes on January twenty fourth, 2024. For the quarter, company-wide income rose 4% to $17.38 billion whereas diluted adjusted earnings per share climbed 8% to $3.87 on a year-over-year foundation. Diluted GAAP earnings per share elevated 13% to $3.54 within the quarter.
Supply: Investor Presentation
Software program income elevated 3.1% to $7.5 billion because of 2% progress in Hybrid Platform & Options and a 5% enhance in Transaction Processing. Income was up 8% for RedHat, 1% for Automation, and 1% for Information & AI.
Consulting income elevated 6% to $5,048M from $4,770M because of 5% rise in Enterprise Transformation, +4% enhance in Know-how Consulting, and 6% progress in Software Operations. The book-to-bill ratio is a wholesome 1.15x.
Progress Prospects
IBM engineered a profitable turnaround previously few years, and there are indicators rising that IBM’s turnaround is gaining traction.
Its precedence is to develop into a pacesetter in synthetic intelligence and hybrid cloud options. It has invested aggressively in these areas, such because the $34 billion acquisition of Pink Hat in 2019.
IBM sees the hybrid cloud as a $1 trillion market and its most important alternative to return to progress sooner or later.
In 2023, IBM continued its behavior of frequent tuck-in acquisitions. IBM acquired software program firm Apptio for $4.6 billion, increasing its AI choices. The corporate adopted that up with the acquisitions of StreamSets and webMethods. IBM has acquired 30+ firms below the current CEO.
IBM forecasts income progress within the mid-single-digits and free money move of about $12 billion in 2024. We anticipate 4% annual EPS progress for IBM over the following 5 years.
Aggressive Benefits & Recession Efficiency
IBM has enjoys significant aggressive benefits, primarily its business management place and scale. IBM’s aggressive power is its model, entrenched buyer relations and intensive patent portfolio. IBM can be the market chief in mainframe computer systems the place it has 90% of the market and little competitors.
When it comes to recession efficiency, IBM receives blended evaluations. As a worldwide expertise firm, IBM is uncovered to the fluctuations of the broader financial system.
For instance, in 2020, the corporate’s income and earnings-per-share declined as the worldwide financial system fell into recession because of the coronavirus pandemic.
That stated, IBM carried out comparatively nicely within the Nice Recession of 2008-2009. IBM’s efficiency throughout that recession is listed under:
- 2008 earnings-per-share: $8.93
- 2009 earnings-per-share: $10.01 (12% enhance)
- 2010 earnings-per-share: $11.52 (15% enhance)
- 2011 earnings-per-share: $13.06 (13% enhance)
It’s fairly spectacular that IBM was capable of develop its earnings-per-share in annually of the Nice Recession. Furthermore, the dividend stored growing as nicely.
Whereas the corporate’s recession efficiency was not as robust in 2020, it did stay extremely worthwhile, which allowed it to maintain its dividend enhance streak alive.
Valuation & Anticipated Returns
Based mostly on our 2024 estimate of $10 in earnings-per-share, and the present inventory worth of $188, shares of IBM commerce at a price-to-earnings ratio of 18.8.
The inventory trades above our truthful worth P/E estimate of 13.0. The impression of a declining valuation a number of may cut back annual returns by 7.1% per 12 months over the following 5 years. Due to this fact the inventory appears to be considerably overvalued proper now.
These destructive returns may very well be offset by earnings-per-share progress and dividends. As beforehand talked about, we anticipate 4% annual EPS progress by 2029.
As well as, the inventory has a present dividend yield of three.5%. General, we estimate complete returns at 0.4% per 12 months over the following 5 years.
The inventory worth has risen shortly on higher efficiency and AI optimism, and is now close to a decade-high. The low price of return is because of the overvaluation of the shares proper now.
Ultimate Ideas
In 2021, IBM was inducted to the distinguished Dividend Aristocrats checklist. IBM has continued to lift its dividend annually because of its regular progress and robust free money move.
IBM’s monetary efficiency is enhancing, and the corporate is deleveraging. It ought to be capable of proceed elevating its dividend annually.
That stated, the inventory seems to be overvalued because of its share worth rally over the previous 12 months. The low anticipated returns make the inventory a promote in our view.
In case you are excited by discovering high-quality dividend progress shares appropriate for long-term funding, the next Positive Dividend databases will probably be helpful:
The key home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month:
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