When IBM (NYSE:IBM)reported quarterly earnings, the company posted revenue dropping 3.5% from last year to $17.57 billion. Non-GAAP of $1.84 a share beat consensus estimates.
Despite the stock bounce back from 52-week lows, the dividend yield is still in the 5% range. Does that make the stock a good investment for those seeking income?
IBM posted an unadjusted EPS of $1.31, 40% below the adjusted number. The company also included tax benefits that added $1.2 billion to the results. Both are disturbing for income investors.
If revenue keeps falling steadily, how much cash flow will it have over the next few years? IBM will eventually need to lower its dividend. Conversely, it may sell debt or assets to increase cash flow to pay the dividend. This is unsustainable and would damage the growth prospects of the mature firm.
Investors may look to the Red Hat acquisition as a potential growth driver. In Q1, the unit added $719 million in revenue ($1.066 billion after a $347 million accounting deferred revenue and intercompany adjustment).
Also, cloud and cognitive software revenue grew. This offset the slowdown in global process services and application management.
Your Takeaway
IBM stock already roared back in the last month. The stock is unlikely to offer much more upside for now. Income investors may consider the stock for the 5% dividend yield but other sectors promise better, more consistent cash flow.
