We recently published a list of 10 Best Innovative Stocks that Pay Dividends. In this article, we are going to take a look at where International Business Machines Corporation (NYSE:IBM) stands against the other best innovative stocks that pay dividends.
Innovation plays a crucial role in today’s market. With the significant attention tech stocks have gained over the past year, it’s clear where investors are directing their funds. Tech firms are leveraging disruptive technologies like artificial intelligence to process vast, complex datasets. In the healthcare sector, advancements in research and development (R&D) have led to life-saving drug therapies and treatments. Meanwhile, the growing impact of climate change is pushing energy and utility companies to prioritize renewable energy sources. Therefore, innovation lies at the heart of every industry today.
Businesses in the US and globally swiftly recognized the influence of innovation on their growth and operations, and they are gradually shaping their activities around it. A recent McKinsey survey of over 1,000 executives revealed that companies with a strong culture of innovation are twice as successful as some of their peers in scaling digital transformations. These innovative firms focus on technologies and changes to their operating models that promote rapid learning and adaptation—essential components of innovation. The report also highlighted that 14 of the top 20 global companies have leveraged innovation to either expand existing markets or create entirely new ones.
Read also: Top 18 Automotive Industry Innovations and Trends
A key component of innovation is R&D, which focuses on systematic and scientific investigation to create new products, technologies, or processes. Through R&D investments, companies can strengthen their abilities, explore fresh ideas, and discover innovative solutions to address customer demands. Businesses worldwide, particularly in the pharmaceutical sector, have boosted their R&D investments to develop new products that meet the demands of their customers. Financial Times reported that R&D in the US has grown in recent decades, increasing from 2.2% of GDP in the 1980s to 3.4% in 2021. This rise is mainly due to the private sector’s contribution, which doubled to 2.5% of GDP. Moreover, the percentage of the population involved in patent creation almost doubled during this time.
It’s not just established companies that are embracing innovation in their operations; the rise of US startups also reflects this trend, as they introduce groundbreaking business ideas previously unheard of. Economist John Haltiwanger found that Americans were starting new businesses at an unprecedented rate. And he’s not mistaken. In 2020, more new businesses were launched than in any previous year, with 2021 following closely behind. According to the Kauffman Indicators of Entrepreneurship, the one-year survival rate for these startups exceeded 80% in 2021, marking the highest rate since 1999. Haltiwanger noted that a surge in new businesses is a strong indicator of job creation, innovation, and productivity growth within the economy. He further said that startup booms not only reflect technological innovation but also significantly drive it. Startups explore how to leverage new technologies, experiment with them, and create new products, pushing competitors to adapt and innovate in response. Research from Texas McCombs, which examined 6,116 patents from the mid-1970s to 2016, highlighted the impact of startups on innovation. The study found that patents from startups were cited 8.5% more each year and 21% more over a nine-year period compared to patents from established companies.
Our Methodology:
For this article, we scanned Insider Monkey’s database of 912 hedge funds as of Q2 2024 and picked companies that actively prioritize and promote the development of new and groundbreaking ideas, products, services, or business processes. From that list, we picked 10 stocks with the highest number of hedge fund investors and ranked them in ascending order of hedge funds’ sentiment towards them. These companies belong to different sectors, including healthcare, technology, aerospace, and defense.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 54
International Business Machines Corporation (NYSE:IBM) ranks seventh on our list of the best innovative stocks that pay dividends. The multinational tech company, initially recognized for its punch card machines, smoothly transitioned to digital computers as they emerged as the new technological standard. Over time, it achieved major advancements in software, computer memory, databases, personal computers, and, more recently, cognitive computing. These pioneering innovations laid the groundwork for the development of billion-dollar enterprises.
Today, International Business Machines Corporation (NYSE:IBM) is concentrating on two main technologies: artificial intelligence (AI) and cloud computing. Since CEO Arvind Krishna assumed leadership in 2020 and refocused the company on these areas, it has experienced a consistent increase in revenue. The company is currently unique in offering a comprehensive technology stack through its Watsonx platform, along with consulting services for the implementation and management of generative AI. While the stock did not perform exceptionally well over the past decade, its strong potential in the AI sector is driving impressive returns this year. Since the start of 2024, the stock has surged by 32.5%, and in the past year, it returned nearly 48%.
In the second quarter of 2024, International Business Machines Corporation (NYSE:IBM) reported revenue of $15.7 billion, which showed a 2% growth from the same period last year. The revenue also beat analysts’ expectations by $147 million. The company exhibited strong cash generation performance. In the first six months of the year, it generated $6.2 billion in operating cash flow and its free cash flow amounted to $4.5 billion. Based on the results from the first half of the year, the company is increasing its full-year forecast for free cash flow, now anticipating it will exceed $12 billion.
On July 29, International Business Machines Corporation (NYSE:IBM) declared a quarterly dividend of $1.67 per share, which was in line with its previous dividend. The company has been rewarding its shareholders with growing dividends for the past 29 years consistently. Moreover, in the most recent quarter, it returned $1.5 billion to investors in dividends. The stock supports an impressive dividend yield of 3.12%, as of September 18.
Insider Monkey’s database of Q2 2024 indicated that 54 hedge funds owned stakes in International Business Machines Corporation (NYSE:IBM), growing from 49 in the previous quarter. These stakes have a total value of $837.5 million. Cliff Asness’ AQR Capital Management was the company’s leading stakeholder in Q2.
Overall, IBM ranks 7th on our list of best innovative stocks that pay dividends. While we acknowledge the potential for IBM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IBM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.