International Business Machines Corporation (NYSE:IBM) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. Accordingly, International Business Machines investors that purchase the stock on or after the 8th of August will not receive the dividend, which will be paid on the 10th of September.
The company’s upcoming dividend is US$1.68 a share, following on from the last 12 months, when the company distributed a total of US$6.72 per share to shareholders. Looking at the last 12 months of distributions, International Business Machines has a trailing yield of approximately 2.7% on its current stock price of US$250.05. If you buy this business for its dividend, you should have an idea of whether International Business Machines’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Last year, International Business Machines paid out 106% of its income as dividends, which is above a level that we’re comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.
It’s disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and International Business Machines fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Check out our latest analysis for International Business Machines
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
NYSE:IBM Historic Dividend August 3rd 2025
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That’s why it’s not ideal to see International Business Machines’s earnings per share have been shrinking at 4.8% a year over the previous five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, International Business Machines has lifted its dividend by approximately 4.3% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. International Business Machines is already paying out 106% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.
Is International Business Machines an attractive dividend stock, or better left on the shelf? It’s never fun to see a company’s earnings per share in retreat. Worse, International Business Machines’s paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it’s not a good combination. It’s not that we think International Business Machines is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with International Business Machines. To help with this, we’ve discovered 4 warning signs for International Business Machines that you should be aware of before investing in their shares.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
