Make no mistake about it: Today's economy is powered by tech. While the scars of the late-'90s tech boom and bust still linger for some, leading tech stocks should be the cornerstone of any investor's portfolio -- even those near retirement.
In fact, while tech has a risky reputation, "old reliable" brand names appear even riskier today. Take 100-plus-year-old dividend stocks General Electric or Kraft Heinz. Both were perceived as "safe," yet both wound up slashing their dividends recently amid large generational headwinds.
Meanwhile, the tech-focused Nasdaq has bested the general market by 60% over the past 10 years.
For those looking for safe and growing payouts with exciting growth prospects, these three tech stars are worth a look.
Microsoft (MSFT 1.05%) has had an incredible run over the past few years, but don't let that deter you -- its future remains bright.
The company made an incredible pivot under CEO Satya Nadella, who took over in 2014. No longer does the company make one-off sales of Windows and Office software; Microsoft has shifted to a software-as-a-service business model much more appropriate for today's times.
That means both its Office and Dynamics enterprise software suites are sold as yearly subscriptions, with customers always plugged in to the latest and greatest version. These new SaaS versions, called "365," are growing like weeds, with Office 365 up 34% and Dynamics 365 up 51% last quarter.
Microsoft has also carved out a spot as the clear No. 2 cloud infrastructure player, behind only market leader Amazon (AMZN -0.59%). Microsoft's Azure cloud infrastructure platform grew 76% last quarter, and as more corporations shift workloads to the public or hybrid cloud, Azure's runway appears very long.
Finally, Microsoft bought work-related social media platform LinkedIn in 2016, which looks like a genius purchase. Last quarter, LinkedIn grew revenue 29%, and the data it provides benefits Microsoft's other products as well.
Microsoft currently pays a 1.6% dividend, which may not be much to write home about, but it's safe and almost sure to grow. The payout ratio is just under 40%, which means net income covers the dividend two and a half times over. With analysts estimating long-term EPS growth over 12%, Microsoft should have no trouble growing that payout for years to come.
Another tech giant with a safe and growing dividend is iPhone giant Apple (AAPL 0.83%). Apple has fallen on hard times recently, as slow iPhone sales -- mostly in China -- caused the company to preannounce awful quarterly earnings in January.
Nevertheless, Apple's stock is inexpensive, at just 14.2 times earnings -- and that includes about $130 billion in excess cash. Strip that out, and its PE ratio falls to a bargain-basement 11.5.
Currently, Apple's 1.7% dividend is covered more than four times over by a 23.5% payout ratio. Apple also plans to return its excess $130 billion to shareholders over time in the form of both dividends and share repurchases. That should lead to robust dividend growth.
While there are near-term concerns about the iPhone, Apple has a lot going for it. First, iPhone users are extremely loyal, even if they're upgrading their phones at a slower pace than they used to. In addition, Apple is selling more high-margin services into that loyal installed base. Last quarter, Apple grew services revenue by 19.1%, and its installed base of devices grew from 1.3 billion to 1.4 billion over 2018. With more services coming down the pike, Apple's dividend seems pretty dependable for the foreseeable future.
Check out the latest earnings call transcripts for Microsoft, Apple, and other companies we cover.
Looking for higher growth but also a bit of yield? European semiconductor equipment maker ASML (ASML -2.50%) is an exciting story. ASML has a dividend yield of just 0.94%, but good things can come in small packages. Last year, ASML hiked that payout by 50%, and it has increased its dividend tenfold over the past 10 years. In addition, that current payout is well covered by just a 23.2% payout ratio.
ASML has a few big things going for it. As memory and semiconductor chips get more advanced, there will be huge demand for ASML's lithography tools.
More importantly, ASML is the sole provider of EUV lithography, a technology 20 years in the making that enables huge manufacturing efficiencies for leading-edge chips. This year, the company predicts it will sell 67% more EUV machines than 2018, each of which goes for well over $100 million a pop.
With more and more memory and semiconductors going into cloud data centers, factories, and automobiles, ASML's growth runway -- along with that of its dividend -- looks very bright indeed.