Technology is a perennially hot space for investors looking for momentum or growth ideas, but it can also be a fertile area for investors who like to couple earnings growth with dividends. Although the range of "dividend growth" options in the tech sector is still limited when compared to more traditional sectors like consumer staples, dividend investors have a few valid options when it comes to diversifying toward the tech sector.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Dividend-Paying Chip Makers
It may seem odd that an industry known most for its cyclicality, high capital needs and threat of obsolescence, but many of the better dividend-growth ideas in technology are found among the semiconductor companies.

Analog stalwarts
Analog Devices (NYSE:ADI) and Linear Technologies (Nasdaq:LLTC) both offer high returns on invested capital, ongoing growth prospects and yields above 3%. Investors can also collect a healthy dividend from Taiwan Semiconductor (NYSE:TSM) - the world's largest fabricator of semiconductors - and a likely beneficiary of what will almost certainly be an ongoing trend of companies focusing on design and marketing and outsourcing manufacturing to the fabricators.

SEE: Top Dividend Plays For 2011

(Nasdaq:INTC) also stands out with a current yield of about 3%. Many investors have written off Intel due to the migration of consumers toward smartphones and tablets, but that may be hasty. Intel absolutely has some catching up to do, but if these devices are here to stay, Intel's enormous R&D budget could very well buy it back into the race.

Software - One Big, One Small
Many investors may not have even heard of Blackbaud (Nasdaq:BLKB), a company that provides software to non-profit organizations. The company does pay a nearly 1.5% dividend, though, and analysts presently believe that the company can continue to post double-digit earnings growth for several years to come.

Exciting growth seems like a distant memory for Microsoft (Nasdaq:MSFT), but this software giant is still growing faster than the overall economy and paying a decent dividend to boot. Like Intel, Microsoft needs to reassure investors that it can change and adapt with the times, but it seems that Microsoft could, at a minimum, harvest compelling amounts of cash flow from its business for some time to come.

SEE: The Power Of Dividend Growth

Odds and Ends That Pay Healthy Dividends
Like semiconductors, investors may find it surprising that semiconductor equipment makers like Applied Materials (Nasdaq:AMAT) and KLA-Tencor (Nasdaq:KLAC) pay any meaningful dividends at all. Although neither pays out enough to really jump out as an income all-star, both companies' market positions suggest that they can not only continue to grow but also increase their payout ratios over time.

With the success of smartphones from Apple (Nasdaq:AAPL) and Motorola (NYSE:MSI), Nokia (NYSE:NOK) has faded into the background. While the days of Nokia as a popular tech stock seem impossibly long ago now, the fact remains that Nokia is still the world's largest cell phone maker. Nokia is not a safe stock and investors should not assume that dividend is carved in stone. Still, for investors willing to bet on a successful turnaround (or at least a stabilization of the business), this could be a worthwhile idea.

The Bottom Line
It is admittedly difficult to find tech stocks that pay out enough of their earnings and trade at a reasonable enough valuation to offer yields that would interest dividend-growth investors. In many cases, even the most successful tech companies prefer to spend their cash on M&A or share buybacks rather than tie themselves down to the responsibilities and obligations of meaningful, regular dividends. That said, investors willing to take on a little risk and do a little digging can find at least a few ideas here that could help diversify their portfolios and strike a good balance between income and growth.

SEE: Dividend Facts You May Not Know

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center