Think it’s too late to buy big tech stocks? Here’s an overlooked comeback play with a 5% dividend

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We're starting a series about tech stocks that you might be overlooking. How about $IBM and its “blue chip dividend” yield of more than 5%?

International Business Machines Corp. has suffered disparagement like no other large-cap tech name because the 109-year-old company has seemingly failed to innovate, while tens of billions of dollars spent on stock buybacks didn’t help investors.

— Victoria Greene, founding partner and portfolio manager, G Squared Private Wealth In an interview, Greene discussed IBM’s new direction under Arvind Krishna, who stepped up to become CEO in April, after leading IBM’s acquisition of Red Hat in July 2019. She touted the company’s “blue chip dividend” yield of more than 5%, which is well-supported by cash flow, and pointed to “a transformative three to five years as it sheds its older legacy business and refocuses on growth.

Over the past 12 months, IBM has generated $13.55 a share in free cash flow , for a free cash flow yield of 11.36%. That’s tremendous coverage of the dividend. In fact, IBM is one of the highest-yielding components of the S&P High Yield Dividend Aristocrats Index SPHYDA, +2.13%, which includes companies that have increased their regular dividend payouts for at least 20 consecutive years.

But there is a silver lining in IBM’s numbers — the Red Hat unit’s sales were up 18% from a year earlier .

 

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