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The old school tech world is changing.
There has been a huge shift away from hardware to software in recent years, and the rise of mobile applications and cloud computing is increasing productivity. Some of the services that major tech companies offer are now being sold on a per-user or subscription basis, running on servers and public clouds. You don’t need as many back-office employees and as much hardware these days to run a tech company.
So while this is good news for company productivity and margins, it’s bad news for employees.
With this recent shift in how the tech world operates, a number of older tech companies have started downsizing to help save money and facilitate their shift to faster-growing markets. During the first quarter of the year, tech companies cut over 17,000 jobs. That’s a 150% increase from 2015.
So while we’ve already seen a number of major layoffs this year, we’ll likely get more cuts from big companies like Cisco Systems (NASDAQ: CSCO), Oracle (NASDAQ: ORCL) and Microsoft (NASDAQ: MSFT) before the end of the year.
The thing about the tech industry is that it’s not known for its dividends. However, with the increasing volatility in the space, investors will likely start flocking to safety, which starts with a solid dividend.
But again, many major tech giants aren’t offering enticing payouts. For example, Apple (NASDAQ: AAPL) is paying out a dividend that yields less than 2%.
However, there are two big tech companies that despite having a tough time transitioning their businesses right now, still offer dividend yields in excess of 3%. But on the positive side, despite hitting a rough patch, they have been the most aggressive in terms of job cuts. It’s a move that should help keep their dividends intact going forward.
No. 1 Old Tech Dividend Worth a Look: Intel (NASDAQ: INTC)
Intel is the most recent old tech company to decide that it is time to downsize. It decided to undergo an impressive restructuring to help facilitate its shift to the cloud and smart-connected devices. This includes cutting 11% of its workforce, which amounts to 12,000 jobs.
This job cut ranks as one of the largest in tech industry history, right up there with Microsoft’s 2014 announcement to cut 18,000 jobs. The Intel move comes as the company is looking to reduce its exposure to the declining PC market. Shares of Intel are now down close to 10% this year. In the meantime, Intel shares are offering a 3.3% dividend yield, which is still just a 40% payout of earnings.
The other part of the layoffs for Intel is a key shift in strategy. The cloud is becoming even bigger in the tech world, and a greater focus on that market is welcomed for shareholders. The shift toward the cloud has the potential to hopefully stop the influx of small and nimble competitors from stealing market share.
No. 2 Old Tech Dividend Worth a Look: International Business Machines (NYSE: IBM)
IBM has decided to cut 14,000 jobs, which is close to 5% of its workforce. Still, its stock is down 12% over the last year and has grossly underperformed the S&P 500 in the last five years.
For IBM, it’s a big transitional period, and its turnaround is taking a lot longer than many expected, including Warren Buffett. However, the one advantage that Buffett has over the average investor is that he takes a long-term perspective.
Buffett is also perfectly fine collecting the 3.5% dividend yield that IBM pays. The company has paid a dividend for 16 years, and it’s paying out less than 40% of its earnings via dividends.
The IBM transition involves moving away from mainframe computers and gaining exposure to the fast-growing cloud market. IBM has been around a long time and is no stranger to industry-wide transformations.
The rate of change for the tech industry continues to quicken, which is eliminating a number of unnecessary jobs. But will job cuts be enough to keep earnings from falling?
At the least, the downsizing measures by Intel and IBM it should keep their dividends strong. After all, you’re not investing in the likes of Intel or IBM for their rapid growth potential – although as they shift to the cloud there is that future potential. But for now, it’s all about their safe and steady dividends.
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