Once, technology companies tended to plow excess cash into innovation, keeping it largely out of shareholders’ hands.
Clearly, the tech sector has come a long way since those days.
Now, tech companies do still reinvest profits by the billion into research and growth, but nowadays, margins are so fat, and there’s so much cash, that management can afford to pass it along – in large amounts – to investors in the form of dividends.
As I mentioned yesterday, nine S&P 500 tech firms hold some $350 billion in cash and equivalents. That’s why I re-recommended Cisco Systems Inc. (NASDAQ: CSCO), Apple, and Microsoft, all of which pay sustainable, inflation-crushing dividends.
But you needn’t limit yourself to marquee mega-caps. If you know where to look, the tech sector is flush with cash, ready to fly back into shareholder hands.
Take Verizon Communications Inc. (NYSE: VZ), for instance. It’s America’s second-largest telecom company and second-largest mobile network provider. You may not think of Verizon as a tech company, but as the company behind what’s widely considered to be the most extensive and fastest mobile data network, it’s at the forefront of most of today’s key tech trends, including the Internet of Things, 5G, of course, and edge computing. It’s currently paying 4.32% out of around $7 billion cash on hand.
Then there’s “Big Blue” – International Business Machines Corp. (NYSE: IBM), the granddaddy of tech stocks, with a storied history of several crucial innovations that helped bring about the digital era. Company employees have won six Nobel Prizes over the years. The firm has since moved out of the consumer product business and is now a research and consulting-focused firm that works on nanotechnology, its Watson AI-computer, health tech, cloud computing, and IT services. It pays a 5.41% dividend yield from its $14 billion cash hoard. Interestingly, the stock is down 6% or so over the past six years, but its recently announced “NewCo” spin-off seems to have all the ingredients of a turnaround – particularly in that it will extricate IBM from the legacy, low-margin business lines that have been dragging it down.
Broadcom Inc. (NASDAQ: AVGO) is another illustrious name in the history of computing. If you’ve ever connected to the Internet through a cable modem or Wi-Fi router, chances are you’ve used a Broadcom chip without knowing it. Broadcom designs chips that power wireless communications, wired Internet, optical sensors, hard drivers, and so much more. The firm is also a key designer of the devices and software that keep corporate networks and the Internet running smoothly. It pays $13 per share per year from its $8.8 billion cash reserves – that figure represents a 62% year-on-year increase, by the way.
Any and all of these tech companies belong in every portfolio’s “dividend payers” segment.
The “Hunt” for Tech Dividend Payouts Is Over
But I think it’s a smart move to make one play for every single one of them – and more – with the First Trust NASDAQ Technology Dividend Index Fund (NASDAQ: TDIV), an exchange-traded fund with exposure to all the companies I just mentioned, plus heavy hitters like Intel Corp. (NASDAQ: INTC) and Qualcomm Inc. (NASDAQ: QCOM). In fact, if you own this ETF, you own 100 U.S.-listed, globally headquartered tech and telco dividend payers.
For management to even consider investing, a company has to have a market cap of at least $500 million and have paid a dividend to shareholders for at least 12 months.
It’s a great way to get exposure to more speculative tech and telecom propositions, too.
Consider Telecom Argentina SA (NYSE: TEO) – a huge telecom provider in the north of the emerging market of Argentina, including the capital Buenos Aires. The company provides landline service, of course, but also a wireless phone network, cable television, and Internet access. South America’s middle class is expanding rapidly and is more connected than ever before, so Telecom Argentina is growing rapidly, too. Its unbelievable dividend of 14.77% would most likely not be very safe to own yourself, but it certainly boosts the return of the TDIV ETF. And in the event a dividend cut slams the stock, TDIV’s exposure there is such that the ETF would be totally safe.
So TDIV puts you in the middle of a diverse array of tech holdings, from blue chips to red-hot speculative plays.
I certainly like it. TDIV will pay you a dividend itself, too – just under $0.09 a share, or around 2.03% annualized. It has an extremely attractive expense ratio of 0.5%.
And in the meantime, check out the three stocks we like even more than TDIV…