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Tech Stocks

Digital Dividends

By Jason R. Koepke, on May. 5, 2016

Income-seeking investors tend to gravitate toward utility stocks, master limited partnerships and real estate investment trusts—groups that generate reliable cash flow to support generous dividends.

Despite a reputation for volatile revenue and cutthroat competition that requires constant research and development to stay ahead of the curve, the technology sector is home to more than a few dividend-paying companies worthy of your consideration.

Tech companies that pay meaningful dividends usually fall into two camps:

  • Large-cap names such as Apple (NSDQ: AAPL) and Microsoft Corp (NSDQ: MSFT) that have established businesses and offer relatively low yields; and
  • Semiconductor stocks, many of which entail significant cyclicality because of rapid changes in chip technology and shifts in consumer sales.

Intel Corp (NSDQ: INTC) illustrates these risks, though the company’s industry-leading market position has enabled the stock to maintain a generous dividend yield that hovers around 3 percent. The chipmaker’s x86 architecture has fallen out of favor in recent years, suffering from the decline in PC sales and competition from low-power alternatives developed by ARM Holdings (LSE: ARM, NSDQ: ARMH).

In other words, investors eyeing semiconductor stocks should pay attention to valuation and industry- and company-specific dynamics—not just dividend yield.

The Philadelphia Semiconductor Index has pulled back from its highs, but still trades at an elevated valuation because of the potential for further consolidation within this industry. China-based semiconductor outfits have made no bones about their plans to acquire intellectual property and other capabilities by buying chipmakers.

(Click graph to enlarge.)SOX

Call Security

We prefer to seek dividend-paying tech stocks outside of these heavily fished channels.

Although the political and media focus on cybersecurity has ramped up in recent years, the need to protect sensitive data on personal computers and other devices has existed for decades.

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