10. International Business Machines Corporation (NYSE:IBM)
Average Analyst Rating Score: 3.5
International Business Machines Corporation (NYSE:IBM) is a New York-based technology company that specializes in AI, automation, and hybrid cloud solutions. on April 30, the company declared a 0.6% hike in its quarterly dividend to $1.67 per share. This was the company’s 29th consecutive year of dividend growth. As of June 14, the stock has a dividend yield of 3.95%.
Though International Business Machines Corporation (NYSE:IBM) has raised its dividends for nearly three decades, its dividend growth has remained slow. Over the past five years, it has raised its dividends at an annual average rate of 1.9%. In terms of revenue growth, the company faces significant challenges in its different segments. For instance, in the first quarter of 2024, its consulting, financing, and infrastructure businesses reported declines on a year-over-year basis. This could cause a blow to the company’s overall revenue, considering its consulting business is a major competitive advantage for it. In addition, despite spending heavily on acquisitions, the company’s revenue growth has been disappointing. In 2019, it bought Red Hat for $34 billion, and last year, it spent approximately $6 billion to acquire nine companies. If the $6.4 billion deal for HashiCorp is finalized, it will be IBM’s latest addition to its portfolio.
Diamond Hill Capital also mentioned these business headwinds in its Q4 2023 investor letter:
“Other bottom contributors included our short positions in Garmin and International Business Machines Corporation (NYSE:IBM), as well as our long position in Chevron. IBM’s software and consulting businesses were solid in the quarter, helping drive revenue growth. But the company faces numerous fundamental headwinds in both these businesses, and we expect it will struggle to meet cash-flow guidance.”
One of the main reasons for this slow revenue growth is despite having a strong history with AI, the company hasn’t made this technology its core focus in the past. However, things have changed since 2020 when Arvind Krishna became the company’s CEO. Since then, AI played a role in driving IBM’s sales growth and the stock has surged by roughly 46%. Despite having a relatively strong balance sheet and steady cash flow generation, IBM faces challenges due to its debt position. The company’s debt grew by $3 billion since the end of 2023 to $59.5 billion in Q1 2024. Moreover, its debt-to-equity ratio comes in at 2.7, which raises concerns for income investors. Moreover, its payout ratio of 66.8% is also high.
International Business Machines Corporation (NYSE:IBM) shares reached an all-time of around $206 per share in 2013 and haven’t reached that level again. Although the stock nearly hit $200 earlier this year, it has since fallen back. Analysts have maintained a consensus Hold rating on the stock, which makes it one of the worst dividend aristocrat stocks on our list.
Insider Monkey’s database of 920 hedge funds at the end of Q1 2024 indicated that 49 funds held stakes in International Business Machines Corporation (NYSE:IBM), down from 50 in the previous quarter. These stakes are valued at over $1 billion.
