The Tech Sector’s Golden Goose
Tech stocks have been thriving in the buoyant atmosphere of the new year, delivering substantial gains fueled by optimistic sentiment. The prospect of rate cuts and decreasing inflation have acted as strong tailwinds, while the proliferation of artificial intelligence (AI) continues to infuse the space with positivity.
For income investors, the technology sector historically may not have held as much allure, given the tendency of tech companies to channel their resources toward growth and innovation rather than dividends. However, there are exceptions to this trend.
Three Tech Stars
Three noteworthy technology companies—ASML Holding ASML, Microsoft MSFT, and NetApp NTAP—not only belong to the rare breed of tech stocks that pay dividends but have also experienced upward revisions in their earnings outlooks, reflecting a bullish sentiment among analysts. Let’s delve deeper into each of these dividend-yielding gems.
Microsoft: A Technological Behemoth
Microsoft, currently a Zacks Rank #2 (Buy), has been a driving force behind the broader market’s robust performance and is among the esteemed ‘Magnificent 7’ group. The company’s outlook for the current year has improved, with the $11.14 Zacks Consensus EPS Estimate undergoing a nearly 6% increase over the last year, reflecting 14% year-over-year growth.
The technology titan has steadily augmented its dividend over the years, boasting a 10% five-year annualized dividend growth rate. At present, the company offers an annual yield of 0.7%, slightly above the Zacks Computer and Technology sector average of 0.6%.
Microsoft’s robust cash generation forms the bedrock of its dividend payments. The company raked in a substantial $59.5 billion in free cash flow in FY23, with the trailing twelve-month figure totaling an equally impressive $63.3 billion.
ASML Holding: Leader in Semiconductor Technology
ASML Holding stands as a global leader in producing advanced technology systems for the semiconductor industry. The company has witnessed modest upward adjustments in its earnings estimates across various timeframes, earning it a Zacks Rank #2 (Buy) status.
ASML’s annual dividend currently yields 0.7%, with a sustainable payout ratio at 26% of its earnings. The company is committed to consistently enhancing its dividend over time, a commitment evident in its 33% five-year annualized dividend growth rate.
The company has experienced substantial growth in its top-line, registering double-digit year-over-year revenue growth rates in each of its last four quarters. It generated $7.3 billion in sales in its most recent quarter, marking a 25% increase from the year-ago period.
NetApp: A Player in Data Infrastructure
NetApp, currently a Zacks Rank #2 (Buy), offers enterprise storage and data management software and hardware products and services. Analysts have significantly raised their expectations for the company over the past few months.
The company’s latest quarterly performance was notably robust, with NTAP exceeding revenue projections and achieving record gross and operating margins. NetApp continues to benefit from escalating demand within the data infrastructure segment.
The company’s shares offer an attractive annual yield of 2.3%, a value far above the Zacks sector average of 0.6%.
From a valuation standpoint, the stock is not overpriced relative to its forecasted growth, with earnings projected to climb 10% in its current fiscal year. Shares are presently trading at a 14.3X forward earnings multiple, comfortably below the 16.7X five-year median and the peak of 23.7X.
The stock has been assigned a Style Score of ‘C’ for Value.
In Conclusion
Dividends are akin to a tranquil stream of income, offering investors the luxury of reaping maximum returns through dividend reinvestment and serving as a hedge against downturns in other holdings.
Meanwhile, the allure of technology stocks is undeniable, with many seeking exposure to the sector’s momentum.
For those seeking dividend-paying technology stocks, ASML Holding ASML, Microsoft MSFT, and NetApp NTAP each present as compelling options worth considering.