Finding great long-term investments that will pay you dividends for years to come isn't always easy. Plenty of stocks offer high yields, but tracking down ones with the potential to be fantastic long-term investments can be difficult. Companies that fit this description within the technology sector can be even more elusive.
Fortunately, there are some great tech companies that should help investors build a strong portfolio and deliver consistent dividends as well. Here's why Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and American Tower (NYSE:AMT) fit the bill.
Tech investors already know that investing in Apple has consistently been a very wise bet. Despite the occasional tech pundit predicting the company's demise, Apple has proven that it can continue to sell plenty of its devices while growing new revenue segments, generating strong cash flow in the process, and keeping positive upward pressure on its share price.
Apple's cash cow remains the iPhone, which accounted for 56% of the company's top line in the most recent quarter (fiscal third quarter of 2018). But Apple has also diversified its revenue by expanding its services segment, which includes Apple Music, Apple Pay, and the Apple Store. This business advanced by 31% in the third quarter against the comparable prior-year period. Services now make up 18% of Apple's total sales.
The company pays a somewhat conservative dividend yield of 1.57%, but investors should consider the following. Apple's dividend payout ratio is just 25%, the company recently raised its dividend by 16% in the most recent quarter, and it recently demonstrated its shareholder commitment by announcing a $100 billion share repurchase program.
If you still think of Microsoft as just the Windows and Office maker, it's time to revisit this company. Under the leadership of CEO Satya Nadella, Microsoft has built itself into a true cloud computing competitor to Amazon.com, and it's only getting stronger.
Microsoft's Intelligent Cloud business increased by 23% in the fiscal fourth quarter of 2018 and accounted for about 32% of the company's top line. The commercial cloud business now has an annualized revenue run rate of $20.4 billion, and it reached that goal several months ahead of its own internal timeline. Microsoft's cloud growth has helped the organization become the second-largest public cloud provider. That's excellent news considering that public cloud computing is shaping up to become a $411 billion annual market by 2020.
Microsoft pays its shareholders a 1.65% yield and has raised its dividend for 14 consecutive years. Additionally, the company said that it returned $5.3 billion to its shareholders in the fourth quarter through share repurchases and dividends. Income investors will also be pleased to hear that dividend payments made up less than 40% of the company's free cash flow over the last trailing 12 months, which means that Microsoft can easily afford to keep hiking that dividend.
3. American Tower
Investors looking for a dividend tech stock that's a little bit off the beaten path should consider American Tower. This company rents out space on its cellular towers to wireless telecom companies. With about 160,000 towers worldwide, the company's reach means it can tap into the growing demand for new wireless technologies like 5G.
The proliferation of smartphones across developing countries is also driving data usage up year after year. Between 2016 and 2021, American Tower expects global monthly smartphone data usage to increase by 37%. This means more telecoms will need to expand their capacity and add additional hardware to American Tower's sites to keep up with the demand.
Investors should be aware that American Tower is a real estate investment trust (REIT), so most of its earnings are paid out as dividends. The company has raised its dividend, which currently yields 2.11%, for six consecutive years. With smartphone data usage exploding worldwide, American Tower is ideally positioned to benefit, leaving dividend investors with an attractive company with lots of long-term potential.
If I had to pick just one of these three...
Out of these three fine companies, I believe Apple is the best long-term bet for income investors. The company has continually proved naysayers wrong and has consistently grown its revenue and earnings, entered new markets, and expanded its current ones. Apple's yield isn't as high as those of some other tech dividend stocks, but the company's management, strong sales and earnings growth, innovation bent, and commitment to shareholders will make it a worthy dividend tech play for years to come.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, American Tower, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, short October 2018 $135 calls on American Tower, and long January 2019 $80 calls on American Tower. The Motley Fool has a disclosure policy.