What IBM actually does
IBM, nicknamed Big Blue, is one of the oldest technology companies in the world. It was founded in 1911 and is headquartered in Armonk, New York. It is part of the Dow Jones Industrial Average.
Today IBM concentrates on hybrid cloud and artificial intelligence. It sells software (including Red Hat, bought in 2019), consulting services and infrastructure such as mainframes. In 2021 it spun off its managed-infrastructure business as a separate company, Kyndryl, to simplify its focus.
How the business makes money
Large companies and governments rely on IBM for complex, long-term technology projects. Software generates recurring, high-margin revenue, consulting brings in project fees, and infrastructure supplies the mainframes that run many banks and airlines.
The transition from older businesses to cloud and AI has been slow, so growth has historically been modest.
The dividend story
IBM pays a quarterly dividend and has raised it each year for about three decades, though the increases are small. The yield is higher than that of most technology companies, which makes IBM something of an exception in the sector.
Because growth is slow, it is important to check that the dividend is covered by free cash flow. Our dividend safety guide shows how.
What to keep an eye on
- Execution of the strategy. Growth in software and AI needs to offset declines elsewhere.
- Consulting demand. It is sensitive to corporate budgets.
- Competition. Cloud giants and software firms are strong rivals.
- Payout. A high payout leaves less room for investment.
Quick take
IBM is a mature technology company paying a dependable and slowly growing dividend. Its challenge is to turn its AI and cloud push into steady growth.