Key Takeaways
- Microchip yields 3.1% to IBM’s 2.7%, but Microchip held its quarterly dividend at 45.5 cents again on Nov. 5 and says it has no plan to raise it for the foreseeable future.
- IBM’s dividend took 43% of its free cash flow over the twelve months to Sept. 30, 2026, against 68% for Microchip.
- Microchip’s dividend cost more than its free cash flow in each of its fiscal years to March 2025 and March 2026, and management is putting its spare cash toward debt.
- IBM raised its full-year free cash flow outlook on Oct. 21, while Microchip’s stock fell 12% on Nov. 6 as analysts cut their price targets.
Retirees living off their dividends want a check they can count on.
International Business Machines (IBM) declared its regular $1.69 quarterly dividend on Oct. 21, the same day it raised its full-year free cash flow outlook. On Nov. 5, Microchip Technology (MCHP) held its quarterly dividend at 45.5 cents again, even though its sales rose 42.2% from a year earlier.
Microchip pays the bigger yield. So which one belongs in a retiree’s portfolio?
| Metric | IBM | Microchip |
|---|---|---|
| Dividend yield | 2.7% | 3.1% |
| Annual dividend | $6.76 | $1.82 |
| Dividend growth, 5 years | 0.6% a year (fiscal 2020-2025) | 19.1% a year (fiscal 2021-2026) |
| Cash dividend payout ratio (TTM to Sept. 30, 2026) | 43% | 68% |
| Net debt/EBITDA | 3.1x | 2.6x |
| Interest coverage | 6.7x | 5.9x |
Source: TIKR, at today’s prices. Microchip’s fiscal years end in March.
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IBM’s dividend has plenty of room
IBM’s growth is coming from software. Software revenue rose 8% in the third quarter of 2026 from a year earlier, with Red Hat up 11%.
That growth is turning into cash. Free cash flow was $3.0 billion in the quarter, up $0.7 billion from a year earlier, and IBM now expects full-year free cash flow to rise by more than $1 billion.
IBM’s free cash flow has covered its dividend comfortably in every one of the last ten years:
Its cash dividend payout ratio ranged from 47.6% to 65.4% between fiscal 2021 and fiscal 2025. Over the twelve months to Sept. 30, 2026, it was a well-covered 43%. IBM has also paid quarterly dividends every year since 1916.
The weak spot is growth. The dividend rose just 0.6% a year from fiscal 2020 to fiscal 2025, from $6.51 to $6.71 a share. So $10,000 in IBM pays $270 a year now and about $285 in year 10, a 2.9% yield on your cash today.
The main risk is debt. Including $12.7 billion of IBM Financing debt, it totaled $63.8 billion at Sept. 30, up $2.6 billion this year. On Nov. 9, the EU’s eu-LISA agency sued IBM over delays to the EU’s border system, though the agency says the case covers only the development phase.
Microchip’s raises are on hold
Microchip runs nearly the other way: fast dividend growth in the past, and much less cushion now.
Net sales were $1.622 billion in the quarter ended Sept. 30, 2026, up 42.2% from a year earlier.
The dividend grew 19.1% a year from fiscal 2021 to fiscal 2026, from $0.76 to $1.82 a share. But it didn’t rise at all in fiscal 2026, the year to March, and free cash flow fell well short of it:
That’s a risky cash dividend payout ratio of 126.4% in the year to March 2025 and 113.0% in the year to March 2026, up from 22.2% in fiscal 2023. The sales rebound has brought it back to 68% over the twelve months to Sept. 30, 2026. That’s covered, but with far less room than IBM has.
Management isn’t in a hurry to raise the dividend. On its August call, it said there’s “no plan to increase the dividend for foreseeable future,” with spare cash going to pay down debt. On the Nov. 5 call, CFO Eric Bjornholt said Microchip would “take a cautious approach, keep the dividend where it’s at for now and probably evaluate this.”
So $10,000 in Microchip pays $310 a year today. The stock fell 12% on Nov. 6 as Truist, Needham and others cut their price targets, but the dividend held.
So which dividend wins?
For retirees, IBM is the better dividend stock. Its dividend has far more room, and its free cash flow outlook just went up. Microchip’s dividend cost more than its free cash flow for two straight fiscal years, and its debt still comes first:
Total debt fell from $7.85 billion in fiscal 2022 to $5.64 billion in fiscal 2026, and management still wants it lower before the dividend grows again.
This isn’t to say Microchip’s dividend is unsafe. Sales are growing fast, its payout is back under its free cash flow, and its check is bigger. At each dividend’s current pace, IBM’s income wouldn’t pass Microchip’s until about 2050. Still, a retiree living on these checks should want the one with the most room to spare, and that’s IBM.
If Microchip gets its debt down far enough to start raising again, the 19.1% a year it managed from fiscal 2021 to fiscal 2026 would earn it a much harder look.
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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!
