Technology Leaders Now Paying Monster Dividends, With Growth to Boot!

June 28, 2017 by Jon C. Ogg

Until recently, investors owned technology stocks for their growth. Now investors are still buying growth in technology but they are can also get solid dividends. Some of the dividends are more than impressive. It is no secret that investors love dividends. Some dividends are needed for retirement income, but it should be kept in mind that dividends account for up to half of all shareholder returns over time.

24/7 Wall St. conducted a fresh review of the top dividends from America’s largest companies, and there were 25 companies that yielded 3.5% and more. This yield represents what is officially more than one full percentage point higher than the average yield of the S&P and Dow, and it was over 100 basis points higher than a blend of long-term Treasury bonds. Because of that history of lower dividends, it almost felt surprising that four of the top technology stocks with large market capitalizations were on the list.

The big difference between the Treasury yields and equity yields is that the former are locked in place, and most buyers of Treasury notes and bonds are not buying them with major long-term capital gains in mind. Companies are expected to grow in size and raise their dividends over time. That is particularly true of the major technology companies. Investors assume today that revenue and earnings growth, followed by dividend growth, in future years will translate to higher share prices in the years ahead.

At the start of the last week in June, the average yield was 2.37% in the S&P 500 Index and the average yield of the 30 Dow stocks was 2.43%. The yield of the 10-year Treasury note was last seen at just 2.13% and the yield on the 30-year Treasury bond was just 2.70%. These tech giants have dividend yields that blow those yields away, and again the investing community expects that the technology giants should see their stock prices rise in the years ahead.

24/7 Wall St. used trading data and the consensus analyst price targets (mean as an average) from Thomson Reuters. Additional color has also been provided. Here are the top large cap technology dividends of the S&P 500 Index with potential share price appreciation ahead.

Seagate Technology PLC (NASDAQ: STX) had the highest technology dividend yield, at just over 5.9%. The company is best known for its storage devices. It operates globally and dominates in the storage devices space with rival Western Digital. Its focus is on hard drives, solid state drives and portable drives.

Seagate shares just took a serious breather of over 6% on concerns that NAND trends and drive buying may have peaked, but this duopoly of drive-makers has managed to surprise the critics year after year. If you have followed the cost of 1 terabyte over the past two decades, you also would have been concerned at just how these companies could keep thriving and growing. That is why the old disk-drive makers have already branched out into many other segments around storage and memory.

At $39.75 a share after a recent 6% drop, Seagate had a pre-drop average target price of about $46, and its 52-week trading range is $20.77 to $50.96. Seagate has a market cap of just about $12 billion, half that of its rival Western Digital.

Qualcomm Inc. (NASDAQ: QCOM) has been the king of processors in the mobile phone and tablet arena for years, but its growth recently ran into some headwinds as customers such as Apple have chosen to in-house or go to cheaper rivals. The company also recently has had a slew of royalty payment disputes with customers and other chip players, which could act as a drag for future business when they are all sitting at the deal tables in the years ahead.

Now Qualcomm is hoping to bolster its growth and diversify its revenues away from just expensive microprocessors with the acquisition of a much more diversified NXP Semiconductors. That deal is valued at close to $40 billion, so the raw size might interrupt its recent history of dividend growth until it can absorb the NXP operations. Qualcomm more doubled its quarterly dividend of 25 cents by early 2016, impressive by most standards.

Qualcomm’s dividend hikes helped get the yield up, but so did a falling share price. At $55.75 a share, its yield is 4.0% and its market cap is about $83 billion. Qualcomm has a 52-week trading range of $50.84 to $71.62 and an average analyst target price of $61.55.

International Business Machines Corp. (NYSE: IBM) has been a large buyback and dividend payer for years. After having to abandon part of its artificial earnings per share growth efforts to get to that elusive $20 in earnings per share, IBM has focused on growing in its emerging opportunities in cloud, Watson and other efforts. Big Blue’s big problem is that its legacy IT-consulting operations have been bleeding off faster than IBM can grow its emerging tech businesses. IBM still has around 380,000 employees.

A slew of earnings disappointments has been a thorn in its side, and IBM may need new leadership quite soon if it cannot get that turnaround underway. Its revenue was almost $80 billion in 2016 and was down consecutively each year since at least 2012. Still, IBM has market cap of about $145 billion.

IBM shares recently traded at $155.10, and that generated a dividend yield right at 3.9%. That is meant to reward shareholders while it tries to get that turnaround going into organic growth again. IBM’s consensus analyst target is up at $165.07, and its 52-week range week has been $142.50 to $182.79.

Cisco Systems Inc. (NASDAQ: CSCO) has been one of the top technology companies in networking for two decades. The company has made hundreds of small bolt-on acquisitions around future technologies, and Cisco hopes that security integration can help bolster its sales ahead. Long-time CEO John Chambers has fully turned the helm over to Chuck Robbins, and Cisco has been in the midst of two large restructurings in the past five years in an effort to “right-size” its headcount and unit structure.

Cisco’s revenue was $37 billion in 2016, and it has been stable but choppy over the past five years, but without any real growth. Cisco shares also remain well down from the tech bubble days back in 1999 to 2000. Choppy earnings have prevented Cisco from participating in the technology rally as much as many of its large-cap old technology peers.

At $31.89 per share, Cisco’s dividend yield is up at 3.61%. Its mean price target from analysts is $35.43, and its 52-week range is $27.13 to $34.60. Cisco remains one of the world’s largest technology equipment and services providers, with a market cap of $161.5 billion, and it also can claim to be one of the largest buyers of its own shares in the history of corporate America.

Apple Inc. (NASDAQ: AAPL), also now a Dow Jones Industrial Average stock, is still quite far from the top dividend yield. Still, its $750 billion market cap and 1.7% yield means it is paying more out each year than most technology companies, with about $13 billion in total dividend dollars spent at the current annualized rate. Apple has been more focused on stock buybacks, and those buybacks of the past and those scheduled ahead may be what prevents Apple from becoming the world’s first $1 trillion company by market cap.

I'm interested in the Newsletter