3 Tech Dividends To Buy In 2014
Post on: 19 Август, 2015 No Comment
Generally, tech stocks aren’t the first thing investors think about when searching for income investments.
However, that doesn’t mean the sector isn’t a great place for investors in search of big-time payouts. As many of the more iconic tech names move from high-growth disruptors to more established corporate giants, technology should increasingly become a dividend investors’ dream.
So with that in mind, let’s take a look at three of the more compelling income opportunities in tech in 2014: Apple ( NASDAQ: AAPL ). Microsoft ( NASDAQ: MSFT ) and Qualcomm ( NASDAQ: QCOM ) .
Tech dividend dynamo No. 1 – Apple
Apple taking the top spot on this list shouldn’t come as a huge surprise.
Although Apple’s dividend yield has fallen as Apple’s stock has risen over the second half of the year, Apple still yields an impressive 2.2%. For context, this still sits safely above the 1.9% yield currently offered by the S&P 500 .
However, where Apple stands head and shoulders above every other tech stock is its dividend growth potential. Bluntly phrased, perhaps no other company in tech has the kind of dry powder Apple does with nearly $147 billion in cash and investments on its balance sheet versus just $17 billion in debt. And although much of it is held overseas, its unmatched financial resources give Apple the utmost flexibility in providing shareholders with cold hard cash.
Of course, share buybacks have been the primary focal point of Apple’s capital return program recently; if Apple bully Carl Icahn has his way. this will only increase. However, the bottom line for income-seeking investors is that the odds are overwhelmingly in their favor for Apple to continue to pay dividends.
Tech Dividend Dynamo No. 2 – Microsoft
Although top-line growth could remain a bit of a question mark in the year ahead, software giant Microsoft remains one the most attractive income plays in all of tech.
For starters, income investors looking at Microsoft have history on their side. Since it began paying a dividend in 2003, Microsoft has only decreased its annual payout once, although it more than made up for the decrease with a $3.08 special dividend in the same year. All said, Microsoft has managed to grow its dividend at an average annual rate of 13.3% since its inception.
There’s also no reason to think Microsoft shouldn’t be able to maintain its strong track record of dividend growth. Although several of its core businesses are under threat as PC sales slump and Microsoft’s mobile presence remains muted, Microsoft’s cash flows remain top notch. Over the last 12 months, Microsoft generated an astounding $28.6 billion in cash flow from operations. For context, during the same period, Microsoft paid $7.7 billion in cash dividends.
Microsoft’s shares currently yield 3%, making them more attractive than Apple. And like Apple, Microsoft investors stand a good chance of increased payouts in the years to come.
Tech dividend dynamo No. 3 – Qualcomm
Although perhaps not as well known for its income opportunity, Qualcomm is one of my favorite dividend stocks in all of tech.
True, it’s 1.9% dividend is right on par with the overall market, but that’s just about the only aspect of Qualcomm’s dividend that’s average. Like Microsoft, Qualcomm’s dividend days started in 2003, and it hasn’t looked back since.
Qualcomm’s managed to raise its dividend in each consecutive year since 2003. Even more impressive, Qualcomm has managed to grow its dividend at a average annual compounded rate of 37% from 2003 to today, after accounting for its 2:1 stock split in 2004.
And while both Apple and Microsoft generate significantly more cash flow from operations, Qualcomm has perhaps the most optimistic growth outlook. As one of the leading suppliers of smartphone and tablet chips, Qualcomm stands to benefit by placing more of its chips in mobile devices. However, Qualcomm’s real bread and butter comes from its high-margin intellectual property licensing segment, which also taps directly into the rise of mobile. All said, Qualcomm says it should continue to growth both sales and earnings at more than double digits annually over the next five years, giving Qualcomm plenty of flexibility to keep its prodigious payouts on the rise.
Bottom line for tech investors
Apple, Microsoft, and Qualcomm all offer income investors scouring the tech space with extremely attractive return profiles. Each company discussed above has its own unique set of opportunities and risks associated with it.
However, they all could be great places to invest for income in the year ahead.
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