Who says you must swear off dividends if you invest in rising S&P 500 technology stocks? Some investors are scoring both this year, including with ETFs.
Seven rallying information technology S&P 500 stocks, including Corning, Mastercard and NortonLifeLock pay a dividend, which is somewhat unusual in the industry. But their shares are also up 5% or more this year so far, which is even more unusual in tech, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
All in, these stocks are on pace to return up 6% or more this year, if you add year-to-date gains to their annual yield. That's a relief in a rough year for tech stocks. The tech-heavy Invesco QQQ, which owns the 100 most valuable non-financial stocks on the Nasdaq, is down more than 10% in 2022 so far.
Discriminating investors are finding the tech sector can also be a source of stable dividends, which are prized during S&P 500 volatility. "Information Technology is thought of as a growth sector, but it has grown up to offer appealing dividends, too," said Todd Rosenbluth, head of mutual fund and ETF research at CFRA.
Finding Dividends In S&P 500 Technology
Dividends are still somewhat unique in the S&P 500 technology sector. But that makes stocks that pay them especially noteworthy.
Only a little more than half of the 75 tech stocks in the S&P 500 pay a dividend. And most are hardly paying AT&T-like yields. The S&P 500 information technology sector only yielded 0.78% at the end of 2021, Rosenbluth says. That's sharply lower than the 2.2%, 2.4% and 2.9% paid by real estate, consumer staples and utilities companies in the S&P 500.
But here's the interesting part. Nearly all of the the 44 S&P 500 technology stocks that paid a dividend raised it or started paying in 2021, says S&P Dow Jones Indices. And that's why, S&P 500 companies actually pay more cash out in dividends than any other sector, Rosenbluth says. The sector's dividend payments account for more than 17% of cash paid out by the S&P 500.
Making Money On Tech In Two Ways
But what good is a dividend if it's paid by a plunging tech stock? And that's why dividends paid by rising tech stocks or ETFs this year are welcome.
Finding a rising tech stock that pays a dividend is tough. Most technology stocks are down this year. The Select Sector SPDR ETF is down 8.7% this year going into Feb. 17. That wipes out its tiny 0.7% dividend yield.
But that means 15% of the stocks in the technology sector are up this year. And some pay a dividend, too. Take Corning. Shares of the maker of high-performance glass for electronic products like smartphones are up nearly 14% this year. That's impressive enough. But the cherry on top is the company's 2.6% dividend yield. That annual dividend plus stock gains this year puts Corning's return on pace to top 16% for the year.
Another example is Mastercard. The payments processing company's shares are up nearly 7% this year. And it pays a 0.5% dividend on top — amounting to a target return this year of 7.1%.
Finding ETFs To Plug Into Tech Dividends
Investors looking to own a piece of the tech sector's growing dividends might also look at the ProShares S&P Technology Dividend Aristocrats ETF, says Rosenbluth.
The ETF owns Mastercard and Corning in addition to 38 other technology stocks that boosted their dividends for at least the past seven straight years. Companies in the ETF yield 1.8%, topping the 0.8% yield of technology stocks in the broader S&P 1500 index. Additionally, the technology dividend ETF's holdings trade for just 20 times expected profit in the next 12 months, making them nearly 25% cheaper than the technology universe.
And get this. On top of a growing dividend, the ProShares S&P Technology Dividend Aristocrats ETF is only down 5.8% this year. That's an improvement from the 8.7% drop in the S&P 500 tech sector itself. The ETF charges 0.45% annually.
"While less-profitable or unprofitable technology stocks have struggled recently, we think dividend-paying companies provide more stability in a likely rising rate environment," Rosenbluth said.
Tech Stock Gainers In The S&P 500 That Pay Dividends
They're all up 5% or more this year so far
| Company | Symbol | Stock YTD % ch. | Yield | Net return (YTD gain + dividend) |
|---|---|---|---|---|
| Corning* | 13.9% | 2.57% | 16.4% | |
| Hewlett Packard Enterprise | 11.9 | 2.76 | 14.6 | |
| NortonLifeLock | 11.0 | 1.72 | 12.7 | |
| Citrix Systems | 7.7 | 1.45 | 9.2 | |
| Global Payments | 6.7 | 0.69 | 7.4 | |
| Mastercard* | 6.6 | 0.51 | 7.1 | |
| Visa* | 5.6 | 0.66 | 6.2 |
