Even after this week’s bludgeoning, the broader markets are still down significantly in 2016. Risk assets are no longer en vogue. And some of the riskier risk assets — growth sectors like tech stocks — are looking pretty ugly right now.
The Technology SPDR (XLK) is off 5% after less than two months of trading in 2016. But think of that as just an average — a number of individual tech stocks have seen more dramatic declines.
However, as tech stocks have dropped, income investors have gained a silver lining — slightly better yields across much of the technology sector. That’s great when you also consider that tech stocks have become of the biggest sources of dividend growth over the last few years, rivaling traditional dividend sectors like utilities and consumer staples.
Right now, tech is a one-two punch of dividend growth and quickly improved headline yields. So grab your shopping bags — here are six tech stocks you should buy thanks to better-looking dividend prospects.
Tech Stocks for the Dividends: Seagate Technology PLC (STX)
YTD Performance: -14%
STX Dividend Yield: 8%
The past 52 weeks have not been kind to Seagate Technology (STX). Shares of the hard drive maker have plunged nearly 50%, including a 14% drop year-to-date.
Sluggish PC sales along with the rise of fast solid-state drives (SSD) have crimped the firm’s outlook, and investors have basically written the traditional memory player off.
But value seekers looking at tech stocks might want to consider STX shares — and not just because they’re yielding around 8%.
STX has started offering SSD-style hard drives in addition to its normal fare. Plus, Seagate is at the epicenter of some of the biggest trends in tech. Analytics, cloud computing, social media and mobile internet applications all have one thing in common — data, data and more data. All of that data needs to be stored somewhere, and chances are, it’ll end up in one of STX’s products in a data center somewhere. So it’s not like growth potential is completely absent here.
Meanwhile, Seagate is very shareholder-friendly. Steady cash flows have helped it reward shareholders via a rich buyback and dividend program. STX has juiced its payout by 66% in just the past three years alone. Just note that there’s not much room to grow the dividend currently, with the payout currently at 93% of this year’s expected earnings. (However, that does dip down to 67% of next year’s expected profits.)
Tech Stocks for the Dividends: Symantec Corporation (SYMC)
YTD Performance: -5%
SYMC Dividend Yield: 3%
Data and network security is one of the biggest trends in tech stocks going forward. And perhaps no one is bigger than Symantec Corporation (SYMC) when it comes to securing those networks.
SYMC is cybersecurity royalty, with a variety of products — including the Norton brand — under its belt.
Symantec has struggled in recent quarters. The sluggishness in the PC market along with the rising dollar has clipped revenues at the data security firm. Also not helping was the sale of its Veritas information management business to The Carlyle Group LP (CG), in which Symantec pocketed about $1 billion less in cash than it wanted.
This all has pressured SYMC shares to a 20%-plus loss over the past 52 weeks.
However, this could be a great time to buy. For starters, SYMC has made a major push into data center and enterprise security — and that will move it away from the volatile PC market. Secondly, the proceeds for the Veritas deal — around $5.3 billion after taxes — are going to go right into investors’ pockets. That includes paying out a $4 per share special dividend, increasing buybacks and raising its regular dividend.
Tech Stocks for the Dividends: Texas Instruments Incorporated (TXN)
YTD Performance: -4%
TXN Dividend Yield: 2.9%
The world runs on computer chips. Semiconductors can now be found in everything — even your coffee pot. And as the backbone of our modern society, the tech stocks that make them have pretty stable cash flows and dividends.
Case in point, Texas Instruments (TXN).
TXN has managed to generate some pretty significant cash flows over the years, allowing the semiconductor firm to increase its dividend every year for 12 consecutive years, including a 12% bump last year.
Driving that continued growth has been TXN’s commitment to higher-margin analog chips as well as diving headfirst in today’s hottest tech trends. That includes making semiconductors for products like smartphones, wearables, renewable energy and Internet of Things connectivity.
Texas Instruments still is 10% below the levels it traded at before it fell with the rest of the stock market. Enjoy TXN’s rebound potential and 3% yield.
Tech Stocks for the Dividends: Motorola Solutions Inc (MSI)
YTD Performance: -4%
MSI Dividend Yield: 2.5%
Back in the mid-2000s, Motorola was at the top of the cell phone world. Then things started to slip, Carl Icahn got involved and the firm split itself in two.
The perceived faste- moving phone businesses was absorbed by Google (GOOG, GOOGL), while the “slower moving” networking hardware side became Motorola Solutions (MSI).
But there’s nothing really slower-moving about MSI’s dividends.
The businesses of providing routers, switchers and other networking equipment is pretty stable, and MSI continues to see some pretty decent sales for its products. That’s helped on the cash flow and dividends fronts. Motorola Solutions has managed to grow its payout 86% since the 2011 spinoff.
Longer-term, MSI should benefit from rising IT spending as well as the growth in data centers, LTE spectrum, cloud computing and mobile data usage.
For now, a 4% year-to-date decline for Motorola Solutions has helped nudge the yield up to 2.5% — not huge, but certainly heading in the right direction quickly.
Tech Stocks for the Dividends: Infosys Ltd ADR (INFY)
YTD Performance: -2%
INFY Dividend Yield: 2.4%
“Renew. New.” That’s the motto for former Indian tech stocks darling Infosys (INFY).
India is home to plenty of tech innovation, and Infosys was the giant in India’s consulting, technology and outsourcing industry. However, INFY has struggled in recent years as key contracts have ended and major personal have fled the exits.
But investors — especially those looking for dividends — shouldn’t count out INFY.
Under new CEO Vishal Sikka, INFY has refreshed its products offer and has plowed headfirst into new higher-margin businesses, such as automation, renewable energy and artificial intelligence. These efforts have finally begun to pay off. During its latest earnings results, INFY managed to see an 8.5% growth in revenue when looking at U.S. dollar terms and a 12.5% jump in constant currency. This reverses some previous quarters of flat to negative growth.
That should help keep INFY’s dividend growing. A note: Infosys pays out a pair of dividends each year — a smaller payout and a larger payout. However, as an annual amount, those payouts have more than doubled in just three years. So while the yield itself isn’t massive, the yield potential is potent.
Tech Stocks for the Dividends: First Trust NASDAQ Technology Dividend Index ETF (TDIV)
YTD Performance: -3%
TDIV Dividend Yield: 3.2%
Investors also can score nice dividends by investing in tech stocks broadly.
The First Trust NASDAQ Technology Dividend Index Fund (TDIV) offers access to some of tech’s biggest dividend players — including all the ones on this list. TDIV is a $450 million fund that invests in 97 dividend-paying tech stocks on the major U.S. exchanges.
The ETF screens for firms that have not cut payouts and meet minimum trading requirements. It then caps tech stocks and telecom stocks at 80% and 20% of assets, respectively. Top holdings include Microsoft Corporation (MSFT) and Cisco Systems, Inc. (CSCO). And its 3.2% yield is much higher than the aforementioned XLK’s 2.5%.
Expenses for TDIV run at just 0.5% annually, or about $50 per $10,000 invested.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.