Key Takeaways
- IBM yields 2.7%, against 1.7% for Cisco Systems.
- IBM’s dividend took 43% of its trailing-12-month free cash flow, against 51% at Cisco.
- Cisco’s revenue grew 12% in fiscal 2026 and its dividend has risen for 15 straight years, while IBM’s dividend has grown just 0.6% a year since fiscal 2020.
- IBM carries net debt of 3.1x EBITDA, against 0.8x at Cisco.
International Business Machines (IBM) raised its free cash flow outlook on Oct. 21. It now expects more than $1 billion of growth this year. The stock still fell 5% after hours, as investors questioned whether its software rebound would last.
Cisco Systems (CSCO) has the reverse worry. Its revenue grew 12% in fiscal 2026, and on Nov. 5 Morgan Stanley downgraded it to Equal-Weight from Overweight, citing its valuation and AI-related pressure on gross margin.
For anyone buying for income, the question is which of these dividends is the better one to own.
| Metric | Cisco Systems (CSCO) | IBM (IBM) |
|---|---|---|
| Dividend yield | 1.7% | 2.7% |
| Annual dividend | $1.68 | $6.76 |
| 5-year dividend growth | 2.6% a year (FY2021-FY2026) | 0.6% a year (FY2020-FY2025) |
| Record (company’s own words) | 15 consecutive years of raises | Quarterly dividends every year since 1916 |
| Cash dividend payout ratio (TTM) | 51% (to July 25, 2026) | 43% (to Sept. 30, 2026) |
| Net debt / EBITDA (LTM) | 0.8x | 3.1x |
| Interest coverage (LTM) | 10.9x | 6.7x |
Source: TIKR, Nov. 5, 2026; records from each company’s own release or call.
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Cisco has the growth
Cisco’s revenue grew 12% to $63.3 billion in fiscal 2026, the year ended July 25. It guides for $72.2 billion to $73.4 billion in fiscal 2027. It took $9.3 billion of AI infrastructure orders from hyperscalers over fiscal 2026. As CEO Chuck Robbins put it on the fourth-quarter call, “We believe the accelerating adoption of agentic AI is fueling a networking super cycle.”
That business has funded 15 straight years of raises. Cisco’s dividend is well covered, taking 51% of free cash flow over the trailing-12 months to July 25, 2026. Dividends paid rose every year for a decade, while free cash flow swung between $10.2 billion and $19.0 billion:
Even in fiscal 2024, its tightest year, the dividend took a manageable 62.5%.
The raises are modest, though: 2.6% a year from fiscal 2021 to fiscal 2026, from $1.46 to $1.66 a share. And Cisco’s product gross margin fell 270 basis points in the fourth quarter because of a heavier hardware mix and memory costs. That’s the same pressure Morgan Stanley cited.
IBM has the bigger check
IBM is the mirror image, with slower sales growth and a bigger payout. Third-quarter revenue rose 5% to $17.1 billion. Software was up 8% and Red Hat up 11%, while IBM Z revenue fell 20% against a strong launch period a year earlier. Doubts about that growth are why the stock fell on Oct. 21.
The cash behind the dividend held up fine. IBM generated about $8 billion of free cash flow in the first nine months of 2026, up 8%, against $4.8 billion of dividends. Over the trailing-12 months to Sept. 30, 2026, the dividend took a well-covered 43% of free cash flow. Free cash flow stayed between $9.09 billion and $15.6 billion over the past decade, well above dividends that crept from $5.26 billion to $6.26 billion:
Even in fiscal 2022, its tightest year, the dividend took 65.4%.
IBM’s dividend has barely grown, though. It rose just 0.6% a year from fiscal 2020 to fiscal 2025, from $6.51 to $6.71 a share. But the record behind it is long. The company says, “With payment of the December 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.”
So which dividend wins?
IBM is the better dividend stock. It pays the bigger check, covers it with more room to spare, and its free cash flow is growing.
The income gap is wide. $10,000 in IBM at its 2.7% yield pays $270 a year now. At its 5-year growth rate, that becomes about $285 in year 10, a 2.9% yield on the original $10,000. The same $10,000 in Cisco pays $170 now and about $214 in year 10, a 2.1% yield. At those rates, Cisco’s income wouldn’t pass IBM’s until about 2050.
Cisco still makes a strong case. Its business is growing faster, its net debt is a light 0.8x EBITDA, and it has raised its dividend 15 years running. Cisco holders also get a shot at the stock’s growth, on top of the dividend. It’s just that, for income, IBM’s bigger, better-covered check comes out ahead.
The catch is IBM’s debt. Its leverage came down from 3.8x in fiscal 2021 to 2.9x in fiscal 2025:
It’s back up to 3.1x over the last twelve months. Total debt reached $63.8 billion at Sept. 30, up $2.6 billion this year. If that keeps climbing, IBM’s raises will likely stay token, and Cisco’s faster-growing dividend would look better the longer you hold.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
