Two Tech Giants Boost Dividends: Should You Buy?

IBM and Qualcomm, two tech industry heavyweights, have recently announced dividend increases, with IBM's new quarterly distribution of $1.67 per share yielding 4% and Qualcomm's $0.85 per share yielding 1.9%. These dividend raises reflect the companies' strong financial health and consistent profitability. But should investors rush to buy these stocks? Let's analyze their dividend growth, payout ratios, and future prospects.

IBM's dividend growth is driven by its focus on high-demand segments like hybrid cloud computing and artificial intelligence (AI). The company's dividend payout ratio is approximately 4%, which is relatively generous compared to its historical average of around 3% and the tech industry average of about 2%. This suggests that IBM has room for future dividend growth while maintaining a conservative payout ratio.

Qualcomm's dividend increase is bolstered by its dominant position in smartphone chipsets and growing automotive market. The company's payout ratio is around 1.9%, which is lower than its historical average of about 2.5% and the industry average. However, Qualcomm has demonstrated consistent dividend growth, with an annual increase of 6% in 2024.



When comparing IBM and Qualcomm's dividend yields to other tech stocks and the broader market, IBM's yield is relatively generous, while Qualcomm's is more in line with the sector average. The average dividend yield of the S&P 500 is around 1.5%, while Microsoft (MSFT) yields 0.8%, and Intel (INTC) yields 4.5%. Considering their solid fundamentals and established businesses, both IBM and Qualcomm could be attractive for income-oriented investors.

However, investors should also consider the companies' earnings growth prospects and overall financial health when evaluating their dividend growth potential. IBM and Qualcomm have consistently increased their dividends over time, indicating a strong commitment to returning capital to shareholders. IBM's dividend payout ratio has historically been around 50%, while Qualcomm's has been around 30%. This suggests that both companies have room for future dividend growth, as they can increase payouts without significantly impacting their earnings.

In conclusion, IBM and Qualcomm's recent dividend increases reflect their strong financial performance and cash flow generation. While IBM's dividend yield is relatively generous, investors should consider other factors such as growth potential, risk, and valuation when evaluating these stocks as investments. Both companies have a history of consistent dividend payouts and have demonstrated the ability to sustain and grow their dividends over time. As such, they could be attractive options for income-oriented investors seeking exposure to the tech sector.