Tech stocks are renowned for their extraordinary long-term growth rather than their dividends. But investing in a tech company that offers a reliable dividend can be a fantastic way to diversify your investment portfolio and benefit from the high-growth potential of the tech industry. It’s no surprise that five of the six most valuable companies on the American stock market are in the tech sector. The industry generates massive amounts of cash, enabling some large firms to reward investors with more than just stock growth.
Microsoft’s Consistent Dividends
Microsoft (NASDAQ: MSFT) remains one of the most reliable options in the tech industry, having increased its dividend payout for 19 consecutive years. In 2023, the company raised its dividend yield to 0.75%, translating to an annual payout of $3 per share – three times what it was 11 years ago. This consistent dividend growth reflects Microsoft’s robust business model, with products like Windows, Office, Azure, and Xbox propelling the company to tech behemoth status.
The success of these products has resulted in annual revenue rising by 144% over the last decade, while operating income has increased by 217%. Moreover, free cash flow has soared by 134%, exceeding $63 billion last year. Additionally, with Microsoft paying out only about 26% of its earnings in dividends, it indicates the potential for continued dividend growth even in the face of headwinds.
Furthermore, Microsoft’s heavy investments in burgeoning sectors such as cloud computing and artificial intelligence (AI) position it for sustained earnings growth over the long term. Despite its relatively high forward price-to-earnings (P/E) ratio of 35, Microsoft’s dominant role in tech and consistent dividend growth validate its high valuation, making it a stock worth considering.
Apple’s Cash Cow Status
Instead of just focusing on high yields, seeking out companies with significant cash resources like Apple (NASDAQ: AAPL) is one of the best ways to identify dividend stocks. While Apple’s dividend yield might not be as impressive as other popular dividend stocks, the company’s cash cow status almost guarantees dividend growth over the long term. With its dividend yield having increased by 120% over the last decade, sticking with its current dividend growth trajectory could see the payouts double again over the next 10 years.
Apple’s powerful presence in tech, driven by the immense popularity of its products like the iPhone, MacBook, and iPad, as well as its digital services, has propelled the company to nearly $100 billion in free cash flow last year. Despite a forward P/E of 29, making it slightly cheaper than Microsoft, Apple’s reliable dividend and expansion into lucrative markets like AI and virtual reality make its stock a solid buy at present.
Nvidia’s Explosive Growth
Nvidia (NASDAQ: NVDA) witnessed explosive business growth last year as its graphics processing units (GPUs) became the go-to choice for AI developers worldwide. The company achieved the distinction of being the first chipmaker to attain a market cap above $1 trillion, with its stock surging by 239% over a 12-month period.
Although Nvidia’s dividend currently stands at a modest 0.03% yield following a 4-for-1 stock split in May 2021, the company’s impressive stock growth coupled with even a marginal dividend renders its stock worth investing in, especially when compared to tech giants like Amazon and Alphabet that offer no dividends at all. Nvidia’s quarterly revenue has surged by 200% over the last year, while its operating income has skyrocketed by 729%, indicating a promising growth trajectory that is likely to result in dividend increases in the coming years.
When considering Nvidia’s robust dividend and the projection that its earnings could reach $24 per share by fiscal 2026, along with the company’s forward P/E of 49, its stock appears to be a compelling investment option currently.