Please ensure Javascript is enabled for purposes of website accessibility

3 Top Tech Dividend Stocks to Buy in February

By Evan Niu, CFA - Feb 8, 2020 at 12:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These tech companies offer healthy payouts for income investors to consider.

In the rapidly evolving tech industry, stable dividends can sometimes be hard to come by. Consumer preferences can quickly shift, technological advances can disrupt incumbents, or companies may need to invest heavily to keep up with the competition. Still, there are plenty of candidates in tech that income investors should consider adding to their portfolios.

Let's take a look at three: Verizon Communications (VZ -0.10%), Seagate Technology (STX), and Apple (AAPL -5.64%).

Exterior shot of a Verizon storefront at dusk

Image source: Verizon.

Verizon: A defensive dividend

As the largest wireless carrier in the U.S., Verizon offers a safe and stable dividend funded in part by nearly 95 million monthly cellphone bills. While Verizon isn't a growth stock (operating revenue grew just 0.8% last year), it steadily increases its dividend every year and produces strong free cash flow ($17.8 billion in 2019) to cover the payout. That's a testament to Verizon's scale: The wireless industry is notoriously capital intensive, yet Big Red is still able to invest heavily in 5G while having cash left over to pay investors.

Competition remains intense, particularly if T-Mobile and Sprint are able to close their proposed $26 billion merger, as the combined company would represent a stronger threat. But Verizon has been able to defend its No. 1 position -- the company just posted its highest fourth-quarter wireless additions in six years. Its total debt load is high at $111.5 billion, but Verizon plans to deleverage over time while remaining committed to its dividend.

In the event of an economic downturn, cellphone bills and other basic utilities remain a top priority in consumers' household budgets relative to discretionary items, reducing the risk to Verizon's dividend. With a yield of 4.1%, Verizon is a top income pick.

Traveler putting a Seagate hard drive into a backpack

Image source: Seagate.

Seagate: A turnaround play paying a generous yield

One of the leaders in computer storage, Seagate is starting to bounce back from a cyclical downturn and could return to growth this year. The company is ramping sales of its 16-terabyte drives, shipping 1 million units last quarter to meet surging demand, while preparing to launch 18-terabyte drives in the first half of 2020. Those high-capacity drives, which command higher prices, are also helping to expand Seagate's margins: Adjusted gross margin jumped 2 full percentage points sequentially last quarter.

The company has also done a good job of maintaining a strong balance sheet, with $1.7 billion in cash and cash equivalents, while free cash flow more than covers its dividend payout. Seagate generated $286 million in free cash flow last quarter, of which $165 million was paid out as dividends to shareholders.

Shares sold off last week following the company's most recent earnings release, but that could be an opportunity in disguise for income investors. At current levels, Seagate is paying a generous 4.75% yield, making it a compelling dividend stock to consider.

Exterior shot of Apple Store on Michigan Avenue in Chicago

Image source: Apple.

Apple: The biggest dividend payer in the world

In absolute terms, Apple is the biggest dividend payer on the planet, shelling out $14 billion in dividends to shareholders in 2019. The Mac maker has long generated more cash than it can possibly use, and the tax reform bill passed at the end of 2017 unlocked Apple's overseas reserves. The company had previously been issuing debt instead of repatriating that money, but it's now able to access its full hoard.

The sheer scale of Apple's capital return program is incredible: Cumulatively, Apple has repurchased over $325 billion worth of shares and paid nearly $100 billion in dividends since starting the program in 2013. While the company allocates the bulk of its capital returns to buybacks, it boosts its dividend payout every year. Last year's increase was 5% to $0.77 per share per quarter, and the company always updates the program when it reports fiscal Q3 earnings in late April or early May, which is just a few months from now.

Between a modest payout ratio (24%) and robust free cash flow generation ($64 billion last year), Apple has no problem affording its dividend. Apple's dividend yield is relatively low at just 1%, but the dividend's stability helps compensate for that. The tech titan has set a target to become "net cash neutral" over time, and still has $99 billion to give back to shareholders to get there.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$140.82 (-5.64%) $-8.42
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$48.89 (-0.10%) $0.05
Seagate Technology plc Stock Quote
Seagate Technology plc
STX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.