When investors think of dividend stocks in tech, two of the most popular names that might come to mind are Microsoft (MSFT +2.11%) and IBM (IBM +0.34%). Microsoft has been paying a dividend since 2003, and IBM has been paying a dividend for decades. Further, both companies have boasted meaningful dividend yields in recent years.
However, I'd argue there's an easily overlooked dividend stock in tech that deserves similar recognition -- particularly after its recent dividend increase: Hewlett-Packard Enterprise (HPE +0.82%).
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Hewlett-Packard Enterprise's dividend
Based on recent dividend growth, it's clear that the enterprise technology company is prioritizing dividends for its investors. On Nov. 9, HPE said it is increasing its regular dividend from $0.65 to $0.75. This represents a nice 15% increase -- not far below its 18% dividend increase last year.
But here's where things may get a bit confusing when it comes to analyzing HPE's dividend -- and why its dividend can get overlooked. At first glance, some investors may conclude HPE's dividend history doesn't come close to Microsoft's or IBM's. But this isn't true -- at least not when you take into consideration the dividends it was paying before HPE Co. and HP Inc. (HPQ 1.74%) were divested into separate publicly traded entities in 2015.
As its own entity, HPE has only been paying dividends since the summer of 2015. But the parent company it came from, HP, has been paying dividends since 1992. Further, HP increased its dividend in many of these years, barring a stretch between 1999 and 2011 in which it held its dividend at the same rate.
Comparatively, Microsoft didn't initiate its dividend until 2003. IBM has paid a dividend since 1913.
Growth potential
|
Company |
Dividend Yield |
Payout Ratio |
Most Recent Dividend Increase |
|---|---|---|---|
|
Hewlett-Packard Enterprise |
2.25% |
27% |
15% |
|
Microsoft |
2.00% |
53% |
8% |
|
IBM |
3.95% |
48% |
7% |
|
HP |
2.62% |
35% |
5% |
Data source: Reuters. Table by author.
When it comes to dividend growth potential, HPE easily beats out both Microsoft and IBM. This is immediately evident in the double-digit annualized dividend growth HPE has been serving investors versus Microsoft and IBM's most recent increases of 8% and 7%. HPE's dividend growth even looks better than HP's; HP only increased its dividend by 5% this year.
And HPE's dividend growth potential begins to look even better when investors take a look at the underlying business. While Microsoft, IBM, and HP are paying out 53%, 48%, and 35% of their trailing-12-month earnings in dividends, respectively, HPE is only paying out only 27% of its earnings. In other words, HPE's dividend has both more room for further increases and more wiggle room if earnings take a hit.
Of course, not everything about HPE's dividend is better than these tech giants. Its 2.25% dividend yield, for example, is far below IBM's dividend yield of nearly 4%. It's also below HP's dividend yield of 2.6%. But HPE's dividend yield is slightly ahead of Microsoft's 2% yield.
To be fair, Microsoft and IBM are both much larger and more established industry leaders than HPE, giving them an edge over the enterprise technology company when it comes to durability. But a close look at HPE's dividend compared to other technology peers certainly highlights some enticing characteristics, making it worthy of a spot on an income investor's watchlist.
