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!

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!