The financial system is getting bizarre, however Worldwide Enterprise Machines (IBM -1.14%) is not feeling a lot of an impression. The tech large’s essential pitch is that it may possibly assist its prospects increase productiveness, improve effectivity, and finally save on prices. That pitch seems to be resonating with the enormous enterprises that IBM serves.

Adjusted for foreign money, IBM’s income rose 4% yr over yr within the first quarter, and the corporate expects full-year development to return in between 3% and 5%. That is consistent with its mid-term plan to generate mid-single-digit income development yearly. Software program and consulting, which collectively represent round 75% of IBM’s income, expanded by 6% and eight%, respectively, whereas infrastructure income held regular.

Widening margins

IBM’s aim is to for free money stream development to outpace income development. The plan is to spice up free money stream by a high-single-digit proportion yearly. This yr, the corporate continues to count on free money stream of roughly $10.5 billion, up about $1 billion from 2022.

Reaching this sort of development implies that IBM’s revenue margins should broaden, and that is precisely what the corporate completed within the first quarter. Adjusted gross margin got here in at 53.7%, up 80 foundation factors from the prior-year interval. The consulting phase, which accounted for about 35% of complete income, noticed its gross margin leap by 90 foundation factors.

An enormous chunk of IBM’s consulting exercise facilities round digital transformations — that’s, serving to its prospects transfer to and handle hybrid cloud infrastructures. This helps drive software program income, notably software program from Pink Hat. RedHat’s OpenShift, an enterprise hybrid cloud platform, reached $1 billion of annual recurring income within the first quarter.

IBM’s adjusted pre-tax margin rose by 130 foundation factors yr over yr in Q1 after excluding prices associated to its latest layoffs. Whereas pre-tax margin was unchanged within the software program phase, the consulting and infrastructure models boosted their very own pre-tax margins by 50 foundation factors and 80 foundation factors, respectively. GAAP working bills had been down about 4% because the impression of these layoffs flowed by way of to the revenue assertion.

An affordable inventory

Regardless of a troublesome financial surroundings, IBM is assured that it’s going to ship on its full-year steerage. Assuming the corporate does produce $10.5 billion in free money stream this yr, the inventory trades for simply 11 occasions that free money stream determine based mostly on the present market capitalization.

On prime of a rock-bottom valuation, IBM stays top-of-the-line dividend shares round. The most recent quarterly dividend of $1.65 per share works out to a dividend yield of 5.2%. That dividend will eat up simply shy of $6 billion over the following yr, leaving loads of free money stream left over for debt discount.

IBM has paid consecutive quarterly dividends since 1916, and following a small dividend increase introduced final April, the corporate marked 27 consecutive years of dividend will increase. Traders should not count on something greater than a small improve this yr, however an announcement needs to be coming earlier than the tip of the month.

IBM’s varied companies are centered round serving to its prospects enhance their very own operations. Its hybrid cloud platform is tailored for big enterprises with complicated infrastructures seeking to shift to the cloud, and the corporate’s AI-enabled merchandise will help drive efficiencies. As companies give attention to slicing prices, IBM is able to assist them do precisely that. Even in a troublesome financial system, IBM ought to be capable to increase margins additional because it grows its software program and consulting segments.