Warren Buffett: IBM
Warren Buffett made quite a splash last year when he bet big on technology powerhouse International Business Machines (NYSE:IBM). It was his first major purchase in the tech sphere, and it quickly became one of Berkshire’s largest holdings. Buffett added to his position last quarter, and IBM now accounts for nearly 18% of Berkshire’s portfolio.
The appeal of IBM is straightforward; Buffett was attracted by the stability of the company’s cash flows and its business model as a high-end service provider whose customers are locked into long-term contracts.
But its qualities as a “dividend stock” might be a little more controversial. At current prices, IBM yields only 1.6%. Still, this is roughly in line with the current yield on the 10-year Treasury note, and — importantly — IBM’s dividend rises every year. IBM’s dividend increased 13% this year and 15% the year before.
Of course, this is nothing new. IBM is a proud member of the Dividend Achievers index, an exclusive fraternity of stocks that have boosted their dividends for a minimum of 10 consecutive years. So while the current yield of 1.6% is a little uninspiring, it’s safe to assume investors buying IBM today will be enjoying cash payouts far higher in a couple years’ time than they would have had they opted to invest in bonds.