You don't have to give up big dividends if you like S&P 500 tech stocks. It's possible to get both — if you know the risks.
Microsoft just boosted its dividend, by up 7 cents a share to 75 cents a share a quarter. But it now only yields 0.9%.
In contrast, a dozen stocks in the S&P 500, including IBM, Seagate Technology and HP, yield at least 2.6%, which is roughly double the S&P 500's 1.3% yield, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Some yield upward of 4.6%.
These S&P 500 tech stocks highlight a growing reality: Tech stocks can actually be solid sources of yield. As the tech industry matured, it's turned into a dividend powerhouse. But you have to know where to look. And you must also know the risk of using such a volatile sector for dividends.
Dividends Keep Catching On With S&P 500 Tech Companies
Tech companies have a long-standing reputation for being stingy with dividends. But that's totally changed.
Dividends paid by companies in the information technology S&P 500 sector accounted for 14.2% of the index' total dividends paid in the past 15 years on average, says Howard Silverblatt of S&P Dow Jones Indices. That's higher than any other S&P 500 sector, including the 13.5% contribution by financials, which is in second place.
And that's remained fairly steady. Technology companies in the S&P 500 accounted for 14.87% of dividends paid in the second quarter. That's only slightly behind financials at 15.2% and health care at 14.88%.
But which tech companies are paying decent yields? It's kind of hit or miss. Only 35 of the 65 S&P 500 technology stocks, or a little more than half, pay any dividend at all. That's why the 11 that yield 2.6% or more really stand out.
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Big Blue's Big Dividend Yield
IBM isn't a big player in among the tech giants anymore. The company's $133.4 billion market value pales next to Apple and Microsoft, both valued at north of $2.4 trillion.
But one place IBM does stand out in the sector is with dividends. Big Blue currently yields 4.6%, which is the highest among all S&P 500 technology stocks. Apple yields just 0.5% and Microsoft 0.8%.
IBM's dividend is actually too good to be true in some ways, though. The company paid out $6.61 a share in dividends in the past 12 months. That's actually more than the $2.36 a share the company made on an adjusted basis. IBM will need to boost it profit to match the dividend, or else start using its $16 billion in cash and short-term investments to pay for it (or cut it).
Perhaps that's one reason investors aren't rushing to score the IBM dividend. Shares of IBM are down 3.9% this year. And that's typical. Shares of nine of the 12 S&P 500 tech stocks with the highest yields are lagging the S&P 500 this year.
Seagate: A Big Dividend And Stock Gains, Too
If you're looking for a Big Tech dividend without holding a lagging stock, you have options.
The biggest one is computer storage maker Seagate Technology. The company yields 4.4%, only slightly less than IBM. That dividend's affordability is a bit suspect too, as the company posted a net loss of $529 million on a GAAP basis in the past twelve months.
But investors see a payoff coming, as they've pushed shares up nearly 24% this year. Investors think the company's adjusted profit will double in 2024.
So dividends are possible from tech stocks. But just as tech stocks can be volatile, the dividends they pay shouldn't necessarily be treated like money in the bank.
Top Tech Yields In The S&P 500
| Company | Ticker | Yield |
|---|---|---|
| International Business Machines | 4.6% | |
| Seagate Technology | 4.4 | |
| HP | 3.8 | |
| Corning | 3.5 | |
| Juniper Networks | 3.1 | |
| Texas Instruments | 3.0 | |
| Qualcomm | 2.8 | |
| Hewlett Packard Enterprise | 2.8 | |
| Cisco Systems | 2.8 | |
| Skyworks Solutions | 2.8 | |
| Gen Digital | 2.6 | |
| NetApp | 2.6 |
