IBM (IBM) - Get Report declared a regular quarterly cash dividend of $1.63 a common share, an increase of a penny and marking the 25th year in a row that the company has increased its quarterly cash dividend.
The dividend is payable June 10 to shareholders of record May 8.
The decision to raise its dividend enables IBM to keep the promise Chief Financial Officer James Kavanaugh made during its earnings conference call last week, when he said, "we remain fully committed to our dividend."
Evercore on Sunday published a note advising investors to watch what IBM does with its dividend because it allocated about half its free cash flow toward its dividend payments.
Companies that allocate half their free cash flow, which is calculated by subtracting capital spending from operating cash flow, "need to be monitored," according to Evercore's note, "particularly in the event that [free cash flow] is reduced by 20% to 30%."
Last week, IBM reported a mixed first quarter as earnings topped estimates but revenue lagged expectations. Meanwhile, IBM's free cash flow of about $1.4 billion matched the $1.4 billion it returned to shareholders through dividends.
The company also withdrew its full-year 2020 guidance due to the lack of visibility caused by the coronavirus pandemic.
"We’ve taken actions within our business to provide the necessary flexibility and operating efficiency for the current environment,” Kavanaugh said.
The company closed the first quarter with $12 billion of cash on hand.
Revenue from cloud and cognitive software, which includes its recently purchased Red Hat subsidiary, cognitive applications and transaction processing platforms, rose 5% to $5.4 billion.
IBM shares at last check rose 1.1% to $127.27. The stock is up nearly 6% since its earnings report.