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The technology sector typically isn’t known for dividends. Until recently, you’d struggle to find any tech stocks that paid dividends at all.
But what a difference a few years make. During the financial crisis and ensuing market crash, stock prices across the tech sector got cut by 30% or more.
In the aftermath of the Great Recession, many investors grew an appreciation for dividends. Tech stock dividends aren’t as exciting as the next hot tech device, but they are a source of real return.
With that in mind, here are three tech stocks for 2017 that pay dividends above the average dividend yield in the S&P 500.
Microsoft (NASDAQ: MSFT)
Microsoft has generated excellent returns for shareholders over the past several years. The share price has increased 120% in the past five years, not including dividends.
However, the road hasn’t always been so smooth for Microsoft. There was a time not too long ago, that the stock was described as dead money.
Microsoft struggled for a long time, to break away from the personal computer. Microsoft’s biggest businesses—Microsoft Office and the Windows operating system—were slowing down, as global PC sales have been stuck in a prolonged decline.
But the company invested heavily to bring its software to the cloud, and it has worked wonders. Led by Office 365 and Azure, Microsoft’s cloud-based products are growing at extremely high rates.
Office 365 commercial revenue increased more than 50% last quarter. Azure revenue more than doubled in the same period.
As a result, Microsoft’s commercial cloud segment recently surpassed $12 billion in terms of annualized revenue.
The cash flow continues to pile up for Microsoft. It now has $137 billion of cash and investments on its balance sheet.
It will use this cash to buy back stock, pay dividends, and invest in future growth opportunities. The company recently acquired LinkedIn (NASDAQ: LNKD) for $26 billion. Microsoft will leverage its software capabilities to instantly leverage its scale in social and professional networking, with LinkedIn’s 430 million users.
This growth has reinvigorated the company, and led to its outstanding returns. Growth doesn’t seem to be slowing down any time soon, which is why Microsoft could continue to be a rewarding pick among tech stocks for 2017.
Intel (NASDAQ: INTC)
Intel has a 2.9% dividend yield, and a secure dividend payout. As the largest semiconductor company in the world, Intel generates more than enough earnings to support its dividend.
Like Microsoft, Intel is trying to break away from the PC. But it has had much less success than Microsoft, because the PC is still its largest business. Revenue from the core PC business was flat over the first three quarters of the year.
That being said, Intel does have two specific areas in which it is seeing excellent growth: The Internet of Things and data centers.
These segments have performed very well for Intel over an extended period. Data center sales increased 11% in 2015. IoT and data center revenue increased 14% and 7%, respectively, through the first nine months of 2016.
The challenge for Intel is that data centers and IoT combined, still represent just one-third of Intel’s total revenue.
But this should change in 2017. Intel’s recent $17 billion acquisition of Altera will significantly expand its IoT business. Intel is already starting to see positive results—third quarter revenue set a record for the company.
Cisco (NASDAQ: CSCO)
Cisco clocks in with the highest dividend yield on this list, at a hefty 3.5%. Even better, Cisco has grown its dividend at impressive rates over the past several years.
Investors probably associate Cisco with routers and switching products, which are still its largest businesses. The problem for Cisco is that these areas are slowing down.
Routers and switching still represent approximately 50% of Cisco’s annual revenue.
The good news is that Cisco has invested significantly in three specific businesses that are poised to lead the company going forward. These are, data centers, wireless, and security.
All three grew revenue in fiscal 2016.
Cisco should have no trouble making future investments in these growth areas, thanks to its strong balance sheet. It has $70 billion of cash and marketable securities, with $30 billion of long-term debt.
This means the company is in strong enough financial position to continue reinvesting in the business, and reward shareholders at the same time with tech stock dividends.
With a price to earnings ratio of just 14, Cisco could be a bargain. And, its hefty dividend yield appeals to income investors as well, making it one of our top dividend-paying tech stocks for 2017.