Dividend Paying Tech Companies

The following is a guest post by Andrew Martin.

Technology stocks do not usually come to mind when investors think about dividends as they are more volatile than their peers in the banking or utilities sectors. That being said, a technology stock that pays a dividend should generally be less risky than those that don’t pay one. Instituting a dividend sends a signal to investors that management is confident in the business and committed to its shareholders.

In my search for dividend paying tech companies, I looked for both American and Canadian companies with a dividend yield over 1% and a 52 week return of greater than 1%. This last criteria is key because I want to know what companies are actually making money in these turbulent times. Keep in mind that Canadians receive a dividend tax credit for investing in Canadian companies.

The Tech Mega Caps

Intel Corporation (NASDAQ: INTC)

This tech titan has a history of growing dividends for the last 5 years, has a yield of 3.2% and has a 52 week price change of +13.3%. Its P/E ratio of 11.08 is less than its peers. Look for future news on Ultrabooks to move the stock as Ultrabooks represent a possible growth opportunity due to the shift to thin / light notebooks. Ultrabooks are batting Apple’s Macbook line..

IBM (NYSE: IBM)

A major indicator of corporate IT spending, IBM has grown dividends for over 5 years, yields 1.78% and has a 52 week price change of +8.45%. IBM has a P/E ratio of 13.41 which is in line with peers. IBM has had an excellent run over the last few years but has sold off with recent market turmoil. As the general business outlook improves and european fears subside IBM should continue its upward climb.

Microsoft (NASDAQ: MSFT)

A company needing no introduction, Microsoft has been out of favor with investors for some time. It too has grown dividends for over 5 years, yields 2.66% and has a 52 week price change of +12.76%. MSFT has a P/E of 10.94 which is low for a software and services company. Microsoft’s stock was almost stagnant from 2010 to 2011 with little news to excite investors and its rival Apple making all the headlines with iPhones/iPads and the iOS operating system. With Windows 8 around the corner and Surface tablets on the way, investors are starting to take a second look at the company.

Tech Large Cap

InterActiveCorp (NASDAQ: IACI)

Relatively unknown to most investors, InterActiveCorp (IAC) is a big name in the internet business. While it only began paying a dividend in November of 2011 it is in a relatively unique position to be returning money to shareholders as a growth oriented company. Its yield of 1.03% is quite low, however its 52 week price change is +21.3%. With a P/E ratio of 23.25 the stock is not cheap however compared to Amazon’s PE of 181 it looks like a bargain. The industry PE is 39.5 which has been skewed upward by Amazon. it is not unreasonably valued for a growing company especially with year on year quarterly revenue growth of 39%. IAC runs websites such as Ask.com (search), Match.com (dating), Dictionary.com, DailyBurn (fitness), Vimeo (video streaming) and many more.

Tech Small Cap

Computer Modeling Group (TSE: CMG)

The final stock we will look at is a Canadian company. Canada does not have a lot of dividend paying technology companies and the ones we do have are mostly small caps. CMG yields 3.69% and has raised its dividend steadily for the last 5 years. Its 52 week price change is +32.82% which is incredible in this market. CMG develops reservoir modeling systems for Oil & Gas companies and while I know little about this business I do know that the reason they have outperformed is because their revenue comes from  licensing fees and professional services which are very reliable sources of income. With a DPR of 88%, they are paying out most of what they make to shareholders. If CMG’s software and services are something Oil & Gas companies can’t live without, they have a very bright future.

Company Quarterly Revenue Growth (yoy) EPS PE Industry PE Yield Payout Ratio 52 Week -/+
Intel 0.50% 2.36 11.08 12.5 3.20% 34% 13.30%
IBM 0.30% 13.41 13.88 13.2 1.78% 22% 8.45%
Microsoft 6.00% 2.75 10.94 17.5 2.66% 26% 12.76%
IAC 39.20% 2.04 23.26 39.5 1.03% 12% 21.30%
CMG 19.70% 0.59 27.7 27.5 3.69% 88% 32.82%

** Overall Technology Sector PE is 17.34

There you have it, 5 technology stocks which return a dividend and have outperformed the market over the past year. Let’s see what the future holds!

Andrew Martin is a personal finance and investing blogger from Toronto, Ontario with a background in technology and a passion for travel. His blog, She Thinks I’m Cheap aims to help Canadians make more money by sharing facts, stories and advice.

Readers what’s your take? Do you invest in dividend paying tech companies?

20 Responses to “Dividend Paying Tech Companies”

  1. I have INTC and MSFT in my cross-hair at the moment but no timeline on pulling the trigger.

    Reply to this comment
  2. The Dividend Ninja

    Jul 16. 2012

    Hey Andrew,

    Thanx for the great post! I couldn’t help but notice that Apple didn’t make your list, not that I own it, just curious. 😉

    Cheers

    Reply to this comment
  3. Andrew

    Jul 17. 2012

    Good question Mr. Ninja, Apple should get an honorable mention but since the dividend isn’t in place yet and has no history I thought I would save coverage for another time. Having said that, the yield will be around 1.8% and Apple is still growing. It’s another excellent candidate for investment but I would advise some caution on Apple, it has run a long way.

    Reply to this comment
  4. My Own Advisor

    Jul 19. 2012

    Although all these companies have been winners of late, something about tech and dividend payers in the same phrase causes me some pause, meaning, I don’t invest in them yet. I dunno, what do you think? Should I widen my investing net?

    I’ve got a few U.S. stocks DRIPping, non-tech, so I’ll stick with VTI for a while until I can find new U.S. payers or overcome my tech aversion.

    Did you read this?
    http://www.theglobeandmail.com/globe-investor/microsoft-searches-for-footing-as-google-continues-to-grow/article4428225/

    A sign of things to come for MSFT?

    Reply to this comment
    • Andrew

      Jul 19. 2012

      Thanks for the great comment, it all comes down to risk and how much of it you want in your portfolio. I pulled up a year to date chart on VTI and it’s up 9.46% which is great in this market (excluding dividends)! Personally I like tech companies, am comfortable with some risk and have a long time horizon, so they are a fit for me, not for everyone. Any tech stock should be viewed as a short-medium term investment, I wouldn’t buy and hold for 5 years.

      I did hear about the MSFT news which was almost immediately discounted. Just look at the stock’s reaction, it’s up 2% after hours. The market is telling us that the recent news is no big deal. Having said that I would watch an investment in MSFT closely and set a stop loss. Investors have big expectations for their upcoming mobile products.

      Both Intel and IBM are performing well too after earnings.

      Reply to this comment
  5. I didn’t know MSFT had such a large yield. They reported their first loss in 25+ years today.

    You would think their would be more companies because often they have high margins but look at what is happening to RIM.

    Reply to this comment
  6. The Dividend Guy Blog

    Jul 21. 2012

    Funny as I just wrote a similar post 🙂

    I hold INTC and you should add STX to your list. Probably the best value on the stock market at the moment 🙂 great post!

    Reply to this comment
  7. Matt

    Jul 22. 2012

    To add to the list:

    -Apple will be paying the largest dividend of any tech company (and among the largest of any company period), but it’ll be fairly low in yield and payout ratio.

    -Maxim pays a 3.48% yield

    -Analog Devices pays a 3.20% yield

    -Texas Instruments pays a 2.50% yield

    -Linear Technology pays a 3.25% yield

    Currently, the only tech company I own is Microsoft. However, I’ve been looking at Vanguard’s Information Technology ETF, which includes both dividend paying and non-dividend paying tech companies. The largest five holdings are Apple, Microsoft, IBM, Google, and Intel. The yield is quite low but it’s kind of a set-it-and-forget-it addition to a dividend portfolio to provide more tech exposure than might otherwise be had, without picking stocks.

    Reply to this comment
    • The Dividend Ninja

      Jul 22. 2012

      Hey Matt,

      I think that is an excellent summarry of why one would hold MFST in their portfolio. Your ETF route in this case just makes a lot of sense – instead of trying to pick the next winner, or getting stuck with a tech lemon. Good summary. 😉

      Cheers!

      PS What’s your opinion on TI? It keeps coming into my radar every few months.

      Reply to this comment
  8. Andrew

    Jul 25. 2012

    Glad this post is stirring up some conversation on the of dividend tech stocks. With the earnings miss by Apple yesterday I’m glad I didn’t include the company in this list. IACI just reported earnings and it’s currently up over 7%.

    Reply to this comment

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