You Can Find High Dividend Yields in Surprising Places

It may sound like a surprise, but investors can earn hefty dividend yields from the technology sector.

Apr 22, 2014 at 8:05PM

It may sound difficult to believe, but the technology sector can be a gold mine for income-seeking investors. Historically, technology stocks haven't been known for dividend payouts. They were more concerned with investing profits back into the businesses through research and development of new products, and making sure they kept up with the ever-evolving technology landscape. Investors were equally uninterested in dividends. The huge capital gains produced in the heyday of the technology bubble trounced the slow-and-steady nature of dividends.

However, in the post-2008 era, all that has changed. Investors are now clamoring for dividends as a source of guaranteed return. That's especially true among technology stocks, where investors have pressured management to show them the money. Here are three technology giants that have responding by showering cash on shareholders.

Payouts that are nothing to sneeze at
Technology companies like Cisco Systems (NASDAQ:CSCO), Intel (NASDAQ:INTC), and Apple (NASDAQ:AAPL) pay dividend yields that are greater than the yield of the overall stock market. In addition, their dividend payouts are actually comparable to bonds right now, as a consequence of such low interest rates.

Cisco and Intel both offer payouts of roughly 3.3%, while Apple's is about 100 basis points lower at 2.3%. Cisco has taken great strides in ratcheting up its dividend in recent years. Prior to 2011, Cisco didn't even pay a dividend. Since then, the company has upped its distribution four times, including its most recent 12% increase.

Intel had an impressive streak of dividend increases until recently, as profits have leveled off as demand for its chips has stagnated. Intel is suffering from the decline in PC shipments, and is trying to save cash by not raising its dividend. To that end, Intel hasn't lifted its payout in over a year.

Apple also hasn't raised its dividend in a full year, which should pave the way for a bump up in a matter of weeks. Apple is due to release its earnings report this week, and investors are expecting a dividend increase.

More than enough cash on hand
The reason these technology stocks can pay generous dividend yields, and afford to raise them from time to time, is their strong free cash flow. Technology companies such as Cisco, Intel, and Apple are huge companies that generate billions of dollars in cash flow. Because they hold very little debt on their balance sheets, they don't need to retain much cash.

Look no further than the payout ratio to determine whether a company can afford its dividend payment. This is a measure that analyzes how much a company earns in profit versus how much it distributes to shareholders. Cisco, Intel, and Apple held payout ratios of 62%, 59%, and 30%, respectively. That means they can still afford to reinvest to grow their businesses, while simultaneously rewarding shareholders with compelling dividends. In fact, Apple's relatively low payout ratio is an indication the company may grant shareholders a sizable dividend increase.

The Foolish takeaway
In today's climate of slow economic growth and record low interest rates, yield is hard to come by. But, that doesn't mean investors can't find suitable sources of investment income. While fixed income yields remain low, stocks are a valuable source of yield. That's true even within the technology sector, which houses many high-yielding stocks.

While it may be shocking to learn that technology companies offer sizable dividends, it's actually stands to reason since technology large-caps have lots of cash on the balance sheets with little debt-to-service and strong cash flows. As a result, if you're an investor looking for yield, look no further than Cisco, Intel, and Apple.

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Bob Ciura owns shares of Apple and Intel. The Motley Fool recommends Apple, Cisco Systems, and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers