Chris Lange
5 min read
Quick Read
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IBM’s $14.7B free cash flow covered dividends at a 42% payout ratio in 2025, but one-cent annual raises since 2020 deliver little real income growth.
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Cisco raised its dividend 2% backed by $14B in operating cash flow; Oracle froze its payout while burning cash on $28B in capital spending.
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IBM (NYSE:IBM) has paid a quarterly dividend every year since 1916, and 2026 brought its 31st consecutive year of dividend increases. For retired people who own the stock for income, the run matters less than the cash behind it. IBM is also paying for AI, acquisitions and quantum computing, and a weak second quarter has added pressure.
Free Cash Flow Still Covers the Payout
IBM generated $14.734 billion of free cash flow in 2025 and paid $6.255 billion in common dividends. That means the payout took about 42% of free cash flow. In the first half of 2026, IBM produced $4.8 billion of free cash flow and paid out $3.2 billion in dividends. Management still expects free cash flow to rise by about $1 billion this year. CFO Jim Kavanaugh described the plan on the July call:
“We believe with the focused portfolio that we have, with a very disciplined capital allocation, the diversity of our business model as you see in our guide, with a relentless focus on productivity, we drive the durability of that free cash flow engine that, by the way, enables that flywheel to invest for growth.”
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A Long Streak Kept Alive by One-Cent Raises
The raises have become much smaller. In 2015, IBM lifted the quarterly dividend from $1.10 to $1.30, an increase of about 18%. Every annual raise since 2020 has been exactly one cent, taking the payout from $1.63 to today’s $1.69. The latest increase was about 0.6%. At $233.24 a share, the $6.76 annualized dividend yields about 2.9%. The board is protecting the run and sending most extra cash elsewhere.
