Investors don’t normally associate technology stocks with safety.
Tech stocks are usually deemed to be for short-term traders or those seeking high-risk, high-reward opportunities with a chance to rise 1,000% in two years. Tech stocks aren’t typically known for rewarding shareholders with growing dividends. What money they do make typically goes back into the business to fuel more growth, rather than fuel investor income.
Or so the thinking has traditionally gone.
But the dividend landscape is changing. And tech stocks are becoming the new frontier of income investing. Because of immense financial power, income opportunities abound in the technology sector.
Today’s technology companies are more flush with cash than ever before. Three of the four largest public companies in the world by market cap are tech companies. Ten others are worth $100 billion or more.
So what’s changed versus a decade ago? The difference now is that many cash-rich tech companies are accepting slightly slower growth in favor of higher dividends and stock buybacks.
The average yield among tech stocks in the S&P 500 is 2.7%, fourth among the nine major stock sectors. Some super-speculative, small- and micro-cap telecommunications companies bring up the average. Telecom companies boast an average yield of close to 7%. But even for risk-tolerant income investors, these types of stocks often carry too much risk, with wild fluctuations in both their share price and dividend payments.
When searching for yield, we want proven large-cap companies with a long history of increasing dividends. Ten years ago, such income opportunities were few and far between in the tech sector. Now the industry is chock full of them.
Here are five large-cap tech stocks that yield more than the 10-Year U.S. Treasury – and whose dividends have been growing steadily for years:
AT&T (NYSE: T)
The telecommunications giant is perhaps the most reliable dividend payer in the technology sector. It’s one of only three “Dividend Aristocrats” – companies that have increased their dividends every year for at least 25 straight years – in the sector. AT&T’s current yield is 5.6%.
AT&T doesn’t try to get fancy with its dividend increases. It has upped its payout by exactly one penny per share every year since 2008. That’s not the sexy dividend growth some investors crave. But it’s steady and reliable. And over time, the annual increases and generous yield add up to a steady income stream.
Intel (Nasdaq: INTC)
It’s been a couple years since Intel upped its dividend. But the yield remains strong at 3.6%. Intel’s dividend increases have historically been more sporadic than AT&T’s. In fact, there have only been four increases since 2008. Still, the company hasn’t reduced its payout since 2000, making this tech stock a steady payer.
Cisco (Nasdaq: CSCO)
The dominant player in the chip-making arena didn’t start paying a dividend until 2011. But Cisco has been steadily increasing its payout ever since. What began as a six-cent dividend three years ago will jump to 19 cents on April 1. At its current share price, that’s good for a yield of 3.5%.
Microsoft (Nasdaq: MSFT)
The fourth-largest company in the world has been growing its dividend at a rate of 21% a year since 2010. The 2.9% yield trumps Apple’s (Nasdaq: AAPL) 2.3% yield.
Verizon Communications (Nasdaq: VZ)
For years, Verizon’s dividend was pretty stagnant. It only increased once from 2000 to 2007. Since then, Verizon has upped its payout every year – even during the recession. The stock currently boasts a 4.6% yield.
There are certainly better income options than the technology sector for those who only seek dividend payments. Utilities stocks are more reliable safe havens for income investors. And the basic materials and healthcare sectors offer higher yields.
But if you’re looking for stocks that combine better-than-average yields with superior share price appreciation, then tech stocks are the way to go. And the five stocks mentioned above are prime examples.
The One Stock to Own in 2014 — The Year Mobile Takes Over
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