Tech stock investors used to treat dividends as an afterthought. But that's changing — fast.
Now 23 stocks in the information technology sector — including IBM, Cisco Systems and HP — yield more than the S&P 500, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSurge. That's impressive, as it means a third of the sector is paying a dividend larger than the S&P 500.
And the number of big payouts is rising. Alphabet just initiated a dividend this year. Apple and Nvidia both increased theirs. And yet, many dividend ETFs are underexposed technology as the sector used to be so stingy with yield.
"Many dividend growth ETFs are underexposed to technology or communication services stocks because these companies have relatively short histories paying and raising dividends," said Todd Rosenbluth, head of research at Vetta Fi.
Looking At The Big Yields In S&P 500 Tech
IBM is the big leader when it comes to tech-stock dividends. Big Blue is yielding 3.94%. That's astounding given that the S&P 500 is only now yielding about 1%. But the dividend comes at a cost. Shares of IBM are up just 2.6% this year, while the S&P 500 is up more than 10%.
But tech dividends don't always come at the expense of a lagging share price. Ten of the 22 S&P 500 technology stocks yielding more than the index are also beating it on a price-gain basis.
Take mobile chip designer Qualcomm. Shares of the company are up nearly 45% this year. And that's on top of a 1.6% dividend yield. Investors are gearing up for the company's release of computer chips that run Microsoft's Windows.
But ETFs can be a great option for investors looking for tech dividends.
Not All Dividend ETFs Own Much Tech
The normal go-to ETFs don't necessarily have you covered if tech dividends are your goal.
The ProShares S&P 500 Dividend Aristocrats ETF only owns companies with a 25-year record of dividend growth, Rosenbluth says. As such, the ETF puts just 3% of its holdings in tech stocks and 0% in communications services.
And it's not alone in underweighting tech. "Even the Vanguard Dividend Appreciation ETF, which has a 10-year dividend history focus, is underexposed (to tech)," he said. "Tech is 22%, below the 31% for the S&P 500 and communication services is 1% vs. 9% (in the index)."
You Need To Look Further For S&P 500 Tech ETFs
That means tech investors looking for dividends need to look harder. One option is the First Trust Nasdaq Technology Dividend ETF. The ETF owns 87 dividend-paying tech or communications companies that have not cut their dividend. Top positions include Analog Devices, yielding 1.6%, and Broadcom, yielding 1.49%. Shares of Broadcom are up 25% this year.
Another way to go with ETFs is ProShares S&P Technology Dividend Aristocrats. The ETF holds 36 companies that have grown their dividends for seven years. But some of this ETF's largest holdings don't beat the S&P 500's yield. Top positions include Amphenol, which yields just 0.66%.
It's a similar story with two other top holdings in the ETF: KLA and Lam Research. Lam yields just 0.82% and KLA yields 0.74%, both falling short of the S&P 500.
But it's only a matter of time until some of the big tech dividends start making an impact. And expect the dividend ETFs to change, too.
"As more technology and communications services focus on returning money to shareholders through dividends, we expect these ETFs to become even more diversified," Rosenbluth said.
Top-Yielding S&P 500 Tech Stocks
All exceed the 1% yield of the S&P 500
| Company | Ticker | Yield | YTD change |
|---|---|---|---|
| IBM | 3.94% | 2.1% | |
| Cisco Systems | 3.46 | -8.8% | |
| HP | 3.33 | 9.0% | |
| Corning | 3.12 | 16.7% | |
| Skyworks Solutions | 2.98 | -20.0% | |
| Seagate Technology | 2.89 | 10.4% | |
| Hewlett Packard Enterprise | 2.82 | 7.1% | |
| Texas Instruments | 2.61 | 14.3% | |
| Juniper Networks | 2.56 | 17.4% | |
| Gen Digital | 2.02 | 7.4% |
