Each quarter and year, adjustments are made on the cash flow statement to reflect changes in receivables (money the company is owed for outstanding invoices). In IBM's case, in 2020, it had a $5.3 billion positive change in receivables. Last year, that number declined to $1.3 billion. So although free cash flow declined last year, it doesn't necessarily mean that IBM's business is suffering. It just means IBM did a great job collecting on receivables in 2020. This year, IBM is forecast to pay $6 billion in dividends, which comes out to 56% of free cash flow. Last year, the number was similar, at 55%. I like to see payout ratios at or below 75%, so IBM's is well within my comfort zone. IBM has raised its dividend every year since 1996. Considering IBM's low payout ratio, consistent dividend increases and solid free cash flow, there is a low risk of it cutting its dividend anytime soon. Dividend Safety Rating: B If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol in the comments section. (Note: Safety Net looks only at stocks of individual companies, not exchange-traded funds or closed-end funds.) Check to see whether I've written about your favorite stock recently. Click on the magnifying glass in the upper right part of the Wealthy Retirement homepage, type the company's name in the search bar and hit enter. Good investing, Marc |
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