When it comes to dividends, certain sectors have historically been investors’ favorite stomping grounds. Thanks to their steady cash flows, that’s included sectors like healthcare, consumer staples and utilities.
While there’s nothing wrong with these traditional income industries, investors may want to kick them to the curb and take a look at a sector not typically known for its big dividends.
That would be tech stocks.
Believe it or not, tech stocks have become an income seekers paradise, full of fat, growing dividends. According to ETF sponsor WisdomTree Investments, Inc. (WETF), tech stocks have grown their dividends by an insane 270% since the end of 2007.
The reason is that as many tech companies have matured, they’ve become flush with cash thanks to relatively low overhead and CAPEX costs. Over the last few years, tech stocks have been doling out that record amount of cash back to investors in spades.
While the headline dividend yields aren’t as high as some utilities or consumer staples, they’re growing much faster and will continue to do so for the foreseeable future.
For investors, tech stocks have the dividend goods. Here’s three to consider for your portfolio.
Tech Stocks To Buy For Bigger Dividends: Cisco Systems (CSCO)
Dividend Yield: 3.6%
It’s easy to pass over Cisco Systems, Inc. (CSCO) as a relic from the Dotcom days or call it an aging tech dinosaur, but the truth is, CSCO has plenty of growth left.
Cisco still makes its bread and butter as a provider of various networking products. However, CSCO has moved beyond just switching equipment and routers. It’s now a software and services giant that is delving into everything from cloud computing and cybersecurity to the Internet of Things and renewable energy software.
The real beauty is that these sorts of areas come with much higher growth rates and profit margins. Even more so when the tech stock is able to bundle its services with its networking expertise. How about we secure that network we just built for ya?
That’s allowed CSCO to accumulate a lot of cash. Around $60 billion to be exact. And since 2011, it has been quite generous about sending that cash back into investor’s pockets. Since instituting a dividend, CSCO has managed to grow its payout by 250%.
But given its cash balance and low payout ratio — only around 44% — CSCO still has the goods to keep paying out and growing its dividend.
All in all, when it comes to tech stocks, CSCO is quickly becoming dividend royalty.
Tech Stocks To Buy For Bigger Dividends: Garmin Ltd. (GRMN)
Dividend Yield: 6%
The problem for Garmin Ltd. (GRMN) is more of a perception issue than an actual one. GRMN is the maker of the global positioning systems (GPS) that we all had in our cars a few years ago.
The key word is had. Sales of the ubiquitous Nuvi and other portable GPS units at GRMN have continued to decline as smartphone adoption has grown.
But here’s the thing — GRMN is much more than these basic GPS units that your grandma still uses. The vast bulk of its revenues come from aviation, outdoor and marine GPS and equipment. That includes everything from sonar and radar products to high-tech autopilot units and in-flight displays.
All in all, these three areas generated about 57% of the firm’s revenue and 69% of its operating income. The lessening reliance on automotive products provides plenty of steady profits at GRMN.
Garmin does have growth engines too — namely wearable fitness watches, action cameras and an Apps business. Over the long haul, theses businesses will help GRMN continue to grow and pay its healthy 6% dividend.
Also helping is that GRMN carries no debt — a rarity among tech stocks.
That fortress-like balance sheet will help GRMN weather any hiccups quite nicely and keep investors happy with that fat yield.
Tech Stocks To Buy For Bigger Dividends: CA, Inc. (CA)
Dividend Yield: 3.8%
Like GRMN, CA, Inc. (CA) is a rarity among tech stocks. In this case, it’s because it has been paying a dividend since 1991 — well before it was cool for tech stocks to do.
The former Computer Associates is a software firm that primarily focuses on systems software that operates/runs mainframe, distributed computing, mobile, virtual machine and cloud computing environments. CA also has some application software programs. While that may sound complex, CA basically sells all the software and products that other businesses and organizations need in order to conduct themselves.
Where it’s good for CA is that the firm has woven many of its products together in such a way that switching remains very difficult and costly. Once you’re a CA customer, you’re pretty much one for life.
Secondly, as a tech software firm, CA has crazy good margins. Its only real overhead is salary for programmers. Both of these items help on the balance sheet front. CA has more cash on its books than debt.
It also helps on the dividend front. CA has managed to grow its dividend more than 1500% since 1991.
With continued sales and growth in cloud computing and SaaS transactions, CA should be able to continue its dividend growth down the line.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities, but loves his Garmin Quatix watch.
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