Why IBM Stock’s 5% Yield Won’t Last

When it comes to dividends, 5% is a decent yield. It’s high enough to get your attention, but it doesn’t seem unsustainable.

However, there is one popular 5% yielding house out there that you should avoid: Big Blue itself, International Business Machines Corp. (symbol: IBM).

I wrote a Bear piece on IBM a little over a year ago, and since then the shares are down about 10%.

That might not sound so bad given market conditions in 2022.

But many of the stocks that fell this year will recover and reach new highs in the future. I don’t know that I can say the same for IBM.

Going back to IBM’s 5% yield… I don’t think its dividend is in immediate danger of being cut, but I doubt its long-term sustainability. At the very least, I don’t think there’s much room for growth.

Here’s why.

Business cloud is far behind

A healthy and growing dividend requires a healthy and growing business to support it. And IBM’s business has been in decline for over a decade.

The company’s sales reached an all-time high in 2011 before falling every year for the rest of the decade and hitting a low in 2020. Over the past 12 months, IBM report Sales of about 59 billion dollars. It boasted similar sales numbers in the late 1980s!

IBM was the world leader in corporate computing. Then the cloud was implemented, the technology that allows companies to provide computing services over the Internet. and Microsoft quickly jumped to the lead in this area. Now, IBM is a distant organization, fighting and struggling to hold onto its market share. And its biggest competition is two of the largest and most cash-rich companies in the world.

you tell me Is this a stock you’d want to depend on to fund your retirement? How long do you think IBM can continue to pay and raise its dividend without significant revenue growth?

Hold or trade? IBM Stock Strength Rating explained

When we look at IBM through our stock power ranking system, we see a company very confused in the middle, and earning “Neutral” 52.

IBM stock is rated abysmal 8 out of 100 on our growth factor. Considering how poorly the company has performed over the past decade, I’m surprised it’s even ranked this high.

To its credit, IBM prides itself on solid Volatility rating b 91. And because low-volatility stocks performed well relative to their peers in 2022, it also ranks “strong bull” 86 in momentum. This year, IBM has outlasted its corporate rivals Microsoft (NASDAQ: MSFT) and Inc. (Nasdaq: AMZN).

It’s the stock market. Even junk stocks can have their day in the sun and be great short-term holdings. Consider last year’s mania in meme stocks like GameStop Corp. (symbol: GME) and AMC Entertainment Holdings (NYSE: AMC).

But when you’re considering a new position for a long-term dividend portfolio, business fundamentals matter. You need companies with growth to maintain a dividend. And in this respect, IBM falls short.

The Bottom Line: Trade IBM if you want. But leave it out of your long-term dividend portfolio.

to ensure profits,

Charles Sizemore_Sig

Charles Sizemore, Associate Editor, Green Zone Fortunes

Charles Sizemore He is the joint editor of Green Zone Fortunes and specializes in income and retirement issues. He is also a frequent guest on CNBC, Bloomberg and Fox Business.

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