Investors looking for dividend growth and hefty payouts are often drawn to the utility, consumer staples and even healthcare stocks. After all, the trio’s stable and relatively recession-resistant natures help them churn out plenty of cash flows and big dividend yields.

Well, you can now add the technology sector to that list of dividend stalwarts.

While the “hyper growth” of the dotcom days can still be found, the majority of the technology sector has matured into a stable, cash-flow-heavy machine. And that means a fertile hunting ground for dividend stock lovers. For investors, the time to bet on the sector’s income opportunities is now.

Rising Dividend Growth

During the dotcom bubble of the 1990’s, tech was all about growth, growth, growth – sometimes at the cost of profits. These days, the survivors of the dotcom boom/bust are now producing record profits and cash hoards. Perhaps more importantly, they're beginning to return those dividends to investors in spades.

When PowerShares QQQ (Nasdaq:QQQ) – which tracks the Nasdaq 100 index – was surging during the dotcom days of 1999, its dividend yield was a paltry 0.9%. Today, more than half of QQQ’s constituents now pay dividends and the ETF yields more than 1.43%. The same can be said for the tech firms in the S&P 500. According to analysts at S&P Capital IQ, the reason is quite simple – mature tech firms already have more money than they know what to do with. The sector, on average, features more cash on its balance sheets and less debt than any industry in the S&P 500. That includes traditional stalwarts like utilities and consumer staples.

This results in an environment where tech can payout the big bucks and significantly grow those payouts further.

Already tech is quickly taking the dividend growth crown away from other sectors. For example, Apple (Nasdaq:AAPL) – which only began paying a dividend a few years ago – is already the second-biggest dividend payer in the S&P 500. Over the last 10 years, tech has managed to grow its average dividend payments by nearly 25%. That’s about 10% more than the next closest sector – consumer services – and 19% more than last place financial stocks. What’s more, the technology sector's average payout ratio of free cash flow was just 20%. This compares to 36% for the entire S&P 500.

All in all, that means dividend boosts could be down the line for investors.

Scoring Some High Tech Dividends

With tech now showing growth and dividends, the time to pounce could be now. Perhaps even more so, when you consider the sector can be had for a cheaper P/E ratio than the rest of the S&P 500. Simply buying the popular Technology Select Sector SPDR (NYSE:XLK) nets you a 1.81% yield and P/E of 15.

A perhaps better broad tech dividend play is the First Trust Nasdaq Technology Dividend (Nasdaq:TDIV). The ETF tracks 87 different tech companies – weighted by dividend paying ability and value. Top holdings including firms like Microsoft (Nasdaq:MSFT) and Oracle (NYSE:ORCL). This focus on the biggest and strongest tech dividend payers produces a hefty index yield of 3.19%. That’s impressive considering that tech, just a few years ago, wasn’t really paying anything.

Another fertile ground for big tech dividends can be found in the manufacturers of semiconductors. Forming the backbone of modern technology, semiconductors are found in nearly everything these days – from computers and tablets to washing machines and toasters. That provides their producers with some pretty stable cash flows. Chipmakers KLA-Tencor (Nasdaq:KLAC) and Microchip Technology (Nasdaq:MCHP) yield an average of 3%, while the broad Market Vectors Semiconductor ETF (NYSE:SMH) has a trailing 12-month yield of 2.51%.

Another interesting tech dividend play could be payroll-processing outsourcers Automatic Data Processing (NYSE:ADP) and Paychex (Nasdaq:PAYX). Both firms continue to churn out hefty profits as they make money off “float” from holding businesses' cash before it’s paid to employees. Meanwhile, new cloud computing HR applications provides plenty of future growth for the two firms.

The Bottom Line

Historically, the technology sector hasn’t been known for its dividend prowess. However, that is rapidly changing. For investors, the sector offers some of the best and quickest growing yields around. The previous picks – along with high yielding CA Technologies (NYSE:CA) – make ideal selections to play tech’s dividend punch.

Related Articles
  1. Fundamental Analysis

    Yield Investing: Dividend, Earnings And FCF

    There are numerous ways to value investments, and many investors prefer a specific valuation method. Yield investing is one way to value a stock by comparing the current price to various factors. ...
  2. Fundamental Analysis

    Lessons On Corporate Dividend Payout And Retention Ratio

    Why are dividend payout and retention ratios important to consider when investing in company stock? What companies have high ratios?What constitutes a high dividend payout and retention ratio? ...
  3. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  4. Investing Basics

    Don't Take Dividends For Granted

    Companies have been paying dividends to their shareholders since the 1600s and have given investors good reason to hold onto their shares for long time periods. For many investors, dividends ...
  5. Investing News

    Microsoft Vs. Apple

    Microsoft may be riding Apple's coattails, but that doesn't mean they won't eat Apple's lunch.
  6. Stock Analysis

    Company Overview: Qlogic (QLGC)

    Learn more about the world's leading manufacturer of Fibre Channel network adapters, a key component in high-speed corporate storage networks and data centers.
  7. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  8. Mutual Funds & ETFs

    The 4 Best Indexes for Dividends

    Learn about some of the biggest dividend indexes in the marketplace and which niche of the dividend universe each of these indexes targets.
  9. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  10. Stock Analysis

    3 Chip Makers Betting on the Drone Industry in 2016 (INTC, QCOM)

    Find out which of the big chip makers are betting heavily on a burgeoning consumer drone market that could be the next big wave in consumer electronics.
RELATED FAQS
  1. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reduce the number of times shoppers and buyers have to pay for goods ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  4. What are the dividend reinvestment options for a mutual fund?

    There are two primary choices for how investors can choose to handle dividend distributions made by mutual funds that they ... Read Full Answer >>
  5. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  6. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center