High-dividend stocks are typically in ho-hum sectors like consumer staples or utilities. After all, reliable revenue is what adds up to reliable dividends, and fast-moving tech stocks that think of themselves as “disruptors” don’t fit the bill when it comes to reliability.
But you don’t have to forget about tech if you’re an income investor looking for high-dividend stocks.
Remember, the best dividend stocks to buy simply offer a robust yield and reliable revenue — and believe it or not, there are a select group of technology companies that operate this way. Sure, they might not necessarily be the sexy names you hear about all the time in social media or cloud computing, but they do have a lot to offer investors looking for high-dividend stocks instead of highly volatile growth investments.
It’s actually liberating when you start to embrace older or niche technology companies instead of chasing fads, because these companies offer the kind of stability and high dividends that many investors desire most. Sure, it’s always nice to dream about a stock that triples in three months … but it’s much more realistic to focus on long-term income investments that will keep your portfolio moving in the right direction no matter what.
If you’re willing to accept a more modest rate of growth in your tech stocks in exchange for big dividends, here are five of the best high-dividend stocks in the tech sector right now.
High-Dividend Stocks: Iron Mountain Incorporated (IRM)
Market Cap: $7.3 billion
Dividend Yield: 5%
YTD Performance: +24% vs. 11% for the S&P 500
Iron Mountain Incorporated (IRM) is one of my favorite high-dividend stocks in the tech sector right now. IRM is focused on record storage, including paper documents, but increasingly with a focus on digital backups and information management.
It’s not an incredibly interesting business, considering some of the other information technology companies out there in social media or wireless communications; think of Iron Mountain as a digital filing cabinet.
Still, it’s undeniable that there’s a need for this kind of storage and management — particularly in a world where emails, spreadsheets and other digital documents are so easy to create and so crucial for businesses to keep around for reference.
The “rent” that businesses pay for their storage provides IRM stock with a steady revenue stream to support reliable dividends. Furthermore, its customer base is diversified across commercial, legal, banking, healthcare and government clients.
Iron Mountain recently reorganized as a real estate investment trust, or REIT, and thus must pay out at least 90% of its income as dividends to shareholders. Based on its first quarterly payout as a REIT — 47.5 cents per share — IRM yields almost 5%. And that doesn’t even include a special distribution of $3.61 per share announced a few weeks ago.
The big yield offered by this high-dividend stock surpasses many players in conventional income-oriented sectors like consumer staples, so Iron Mountain is definitely worth a look.
High-Dividend Stocks: Digital Realty Trust, Inc. (DLR)
Market Cap: $9.3 billion
Dividend Yield: 4.8%
YTD Performance: +40%
Digital Realty Trust, Inc. (DLR), like Iron Mountain, is actually a real estate investment trust, not a conventional tech stock, and thus has the same big mandate for dividends.
DLR focuses on data centers and other high-tech real estate used by tenants that include powerhouses like Microsoft Corporation (MSFT) all the way down to small-time Internet startups just making their way in the world.
Digital Realty has been increasing dividends ever since it went public in 2004 — from 15.63 cents quarterly 10 years ago to 83 cents today — and is a reliable player that gives you a bit of exposure to high-tech stocks but with big dividends and smaller risk.
And by the way, if the economy does start to soften, outfits like DLR that allow for outsourcing of operations are actually a plus — not a minus — to the bottom line of tech companies. After all, instead of being burdened with the big expense of manning your own server room, you can scale up or down easily using a DLR facility.
That makes Digital Realty a great recession-proof play, even with its tech focus.
High-Dividend Stocks: International Business Machines Corp. (IBM)
Market Cap: $158 billion
Dividend Yield: 2.7%
YTD Performance: -15%
International Business Machines Corp. (IBM) is different from other players on this list, in a few ways. For starters, it has underperformed so far in 2014 thanks in large part to weak earnings in October that resulted in a deep selloff, and its dividend is just 2.7% — putting it at the bottom end of the yield rankings on this list.
Still, there is great potential in the scale and power of IBM. This is particularly true right now, as most large-cap tech stocks have snapped back from their October lows, but IBM still remains a good bargain.
IBM is one of those mega-cap tech stocks that have a place in almost every portfolio. It has a history of dividend payouts since 1916, and there’s built-in stability here with a company that does roughly $100 billion in annual sales and sports over $14 billion in cash and investments on its balance sheet.
Like many enterprise-technology stocks, IBM has hit a rough spot as IT spending has been squeezed. But the global economy probably will continue to improve in 2015 and into 2016, and technology spending should increase in kind. After all, businesses can’t suffer through with old servers and support products forever.
While revenue growth is lagging, don’t forget the power of stock buybacks. IBM reported 991.8 million shares of common stock outstanding as of Sept. 30, down from 1.18 billion in September 2011. That’s a reduction of 16% in shares outstanding in only three years.
IBM is trading around its lowest levels since mid-2011, and it has a forward P/E ratio of less than 10. Which makes this fallen tech giant quite attractive to long-term dividend stock investors.
High-Dividend Stocks: Seagate Technology PLC (STX)
Market Cap: $21.5 billion
Dividend Yield: 3.3%
YTD Performance: 17%
Hard drive maker Seagate Technology PLC (STX) has cooled off after a red-hot run across 2012 and 2013 where the stock tacked on about 240% in 24 months. Now, it’s beating the market, but not by much.
But there’s still an opportunity to buy in to this hardware company. Many thought it dead as all the hype about a “post PC” age was front and center, but strong share performance and stable revenue proves that STX stock isn’t going anywhere.
And with a forward price-to-earnings ratio of just 11 after this red-hot run in the last few years, there’s no concern that Seagate is in a bubble.
Income investors should note that Seagate stock pays a quarterly dividend of 54 cents — good for a 3.3% yield at current pricing. That dividend has jumped from just 25 cents at the beginning of 2012 for a 116% increase in payouts.
And to top it off, that dividend is still just 37% of next year’s expected earnings!
It’s fair to point out that Seagate did stop paying its dividend during the 2008-09 downturn, and waited until 2011 to reinstate it. It’s also fair to say that Seagate isn’t much of a player in smartphone and tablet storage and this prevents it from achieving big-time growth potential in the years ahead.
However, the rise of mobile has also resulted in a rise of memory storage “in the cloud” — and that means brisk business for Seagate servers and cloud storage drives. After all, the stuff that isn’t on your smartphone has to be stored somewhere.
Like many of the stocks on this list, Seagate isn’t sexy. But as a long-term dividend play in the technology sector, you could do much worse.
High-Dividend Stocks: Garmin Ltd. (GRMN)
Garmin is a familiar name among consumers for its GPS navigation tools. But the business has diversified beyond just suction-cup-mounted gadgets that stick to your windshield. Garmin is involved in airplane and marine navigation systems, as well as in-dash systems supplied to including a deal to make the navigation systems for Mercedes-Benz through 2017. There is also a big push into trucking and logistic GPS technology on top of that.
At the same time, GRMN is seeking out new applications for its technology that include pet location technology for lost dogs, fitness apps for runners, back-up cameras for vehicles and dash cams to help record what goes on in front of drivers to protect police or commercial drivers from liability issues.
Garmin revenue admittedly has been a bit flat in recent years, but the company continues to book earnings growth thanks to better margin products and continued stock buybacks. Throw in about $2.7 billion in cash and investments over zero debt, and this is a company with a very enviable balance sheet.
As for dividends, Garmin pays 48 cents quarterly which is good for a nice 3.3% yield at current pricing. There is room for continued growth in that payout, too, with the dividend at under 60% of next year’s earnings.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at [email protected] or follow him on Twitter via @JeffReevesIP.