The dividend increase represents the 12th consecutive year that IBM has raised its quarterly payout to shareholders. The company's dividend has risen 540% since 1996. IBM also noted that it has paid 366 quarterly dividends in a row, beginning in 1916.
At the company's annual shareholder meeting in Knoxville, Tenn., IBM officials also announced that the company would add $15 billion to its stock buyback program -- bringing the total available for share repurchases to $16.4 billion.
IBM said it may buy its shares on the open market or in private transactions.
As a result of the buyback program, IBM increased its forecast for 2007 earnings per share growth to between 12% and 14% -- one to three percentage points higher than its previous estimate, not including any gains from the sale of the company's printer business to Ricoh.
In a statement, IBM CEO Sam Palmisano said IBM will use its strong cash position to achieve growth through acquisitions and capital investments. "This gives us significant financial flexibility," Palmisano said.
Credit monitoring agency Fitch Ratings, however, on Tuesday placed IBM on negative credit watch, noting that the company said it would use debt to finance part of the share repurchase program.