For anyone in or approaching retirement, stability and safety are two of the most important attributes for investments. There simply isn’t enough time to bet on high-flying momentum or growth stocks for a majority of your portfolio. After all, if things get dicey, you won’t have enough time to make up the losses.
And no sector has a reputation of being higher-growth and higher-risk than tech stocks. Therefore, the sector is often ignored by retirement investors. However, those older investors shouldn’t overlook the traditionally hyper-volatile sector.
While social media and consumer gadget firms like GoPro (GPRO) have taking the headlines by storm, the truth is that the technology sector has matured into a steady and dividend-paying machine. Since the tech bubble burst, the vast majority of tech stocks have gained financial discipline and continue to churn out steady profits.
They also churn out steady dividends, as well. Over the last ten years, tech stocks have led the market in terms of dividend growth by roughly 25% a year. And they still have more room to improve those dividends.
Given that now dividend-oriented nature of tech stocks, retirement investors should consider them for their portfolios. But how exactly should retirement investors go about adding tech stocks to a portfolio? Let’s look at a few ways to do it: a stock, an exchange-traded fund (ETF) and a mutual fund to get you started.
Stock: Intel (INTC)
When it comes to tech stocks for retirement investors, dividends are the key. And when it comes to dividends, perhaps no one in the sector has a better record than chip maker Intel (INTC). INTC currently pays a dividend of 3%. However, INTC has grown that dividend by an annualized 7.5% since 2011.
That strong yield is backed by INTC’s $5.5 billion in free cash flows from operations and nearly $7.54 billion in cash on its balance sheet. Those strong numbers will allow it return more cash back to shareholders for years to come. Not that investors have to wait that long — the semiconductor producer recently announced a monster $20 billion buyback program.
And don’t think that just because INTC is now a strong dividend payer, that the tech stock is “boring.” It has plenty of growth still left.
INTC continues dive headfirst into new chipsets for PC datacenters and is quickly becoming the go to chip producer for networking and “internet of things” operations. And while it has suffered on the mobile front, INTC’s Broadwell-Y and their Core M series of processors for tablets and smartphones are expected to be game changers.
At the end of the day, for those retirement investors looking to a tech stock for their portfolios, INTC offers a great combo of growth and dividends.
ETF: First Trust NASDAQ Technology Dividend ETF (TDIV)
There are plenty of tech-stock-focused ETFs on the market, but the First Trust NASDAQ Technology Dividend ETF (TDIV) could be the best bet for retirement investors. The key for TDIV is that it focuses on those firms that pay steady dividends.
TDIV follows the NASDAQ Technology Dividend Index, which tracks a basket of tech stocks that meet the following criteria:
- have paid a regular or common dividend within the past 12 month
- yield at least 0.5%
- have not decreased their dividends over the last 12 months.
That’s currently 89 different tech firms — with not one bubbly social media stock among them. Top holdings include previously mentioned Intel, Microsoft (MSFT) and semiconductor firm Texas Instruments (TXN).
This focus on steady, dividend-paying firms within the tech sector provides TDIV with a relatively juicy 2.74% yield. The focus has also helped the ETF beat both the S&P 500 as well as all the tech firms within the index — as represented by the Technology Select Sector SPDR ETF (XLK) — since TDIV’s inception. All in all, TDIV has managed to put up an impressive 20% annual return in its two years on the market.
TDIV is pretty cheap to own as well. Expenses for the ETF only cost 0.50% per year — or $50 per $10,000 invested. That fact and its high yield make TDIV an ideal for retirement investors looking at tech stocks.
Mutual Fund: Fidelity Select Software and Computer Services Portfolio (FSCSX)
To make it to and through retirement, it does take a fair amount of growth in addition to dividends in order to make the cut. However, the last thing investors in their 50s and 60s need is a tremendous amount of volatility. Which is why the Fidelity Select Software and Computer Services Portfolio (FSCSX) mutual fund could be a great choice for adding tech stocks to their retirement portfolio.
FSCSX is actively managed and focuses its attention on all the software and outsourcing firms located in the tech sector. The fund currently holds 95 different software giants — including industry stalwarts like Google (GOOG) and Oracle (ORCL). Around 61% of the funds $3 billion in assets are located in the top ten holdings.
But don’t think that the fund is all tech stock dinosaurs. There are plenty of faster moving cloud computing and cyber-security software firms in the mix.
That combo of steady-eddy growers and momentum-style tech stocks has managed to produce a pretty smooth and profitable ride for investors. Since its inception in 1985, FSCSX has managed to produce a 15.63% annual return — beating the S&P 500 by more than 5% per year in that time.
FSCSX carries a Morningstar 5-star rating and expenses run at just 0.79%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.