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
Intel (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!
Stock AnalysisStuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
EconomicsEmerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
Stock AnalysisPepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
Stock AnalysisThese three stocks are resilient, fundamentally sound and also pay generous dividends.
Investing NewsAre stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
Investing NewsHere are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
Investing NewsHere are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
Stock AnalysisIf you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
Mutual Funds & ETFsExplore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
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 >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
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 >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>