Dividends are underrated by technology investors. If you buy into a stock that consistently raises its dividend per share, it can provide a growing stream of cash that you can take home as income or reinvest to buy more shares. A lot of the most popular technology stocks these days are unprofitable and don't pay out a dividend to shareholders, however, if you look at some older companies that are already profitable, there are plenty of technology stocks that pay out a dividend each year. These profitable businesses can be safer stocks to own in volatile market environments like the one facing investors today.
Here are three top dividend-paying technology stocks to buy this month.
Image source: Getty Images.
1. Microsoft: 0.86% yield
Everyone knows Microsoft (MSFT +2.40%), the technology giant that has been a leader in enterprise and consumer software for many decades. The company owns and operates multiple business lines, including Microsoft Office, Xbox video game consoles, LinkedIn, and Microsoft Azure.
Microsoft is one of the largest stocks in the world, with a market cap of $2.2 trillion, and for good reason. The company generated $49.4 billion in revenue just last quarter, up 19% year over year, and $20.4 billion in operating income, up 18% year over year. Steady growth is coming from Microsoft Office and the Xbox division, but the highlight of this business right now is Intelligent Cloud and Microsoft Azure. The Intelligent Cloud segment grew revenue 26% year over year to $19.1 billion in the quarter, with Microsoft Azure growing revenue 46% year over year (management doesn't disclose a specific revenue number). With the overall cloud computing market expected to grow at a double-digit rate through 2030, Azure should continue to benefit as one of the key infrastructure providers to the industry.
NASDAQ: MSFT
Key Data Points
As of this writing, Microsoft has a 0.86% dividend yield and trades at a trailing price-to-operating income (P/OI) of 27. That P/OI is not cheap, and the dividend yield is not very high, but with consistent growth and a dominant position within its key operating segments, Microsoft looks like a safe technology stock you can own for many years.
2. Texas Instruments: 2.61% yield
If Microsoft Azure is one of the backbones of the cloud computing industry, then semiconductors are the backbone for computing in general. More simply, none of our digital or internet-connected devices would work without semiconductor-based computer chips in them. Texas Instruments (TXN +0.27%) is one of the leading manufacturers of semiconductors worldwide, specifically focusing on the industrial and automotive markets. It has over 80,000 products for numerous different industries, serving different niches that customers around the world need.
In the first quarter of this year, TI's revenue grew 14% year over year to $4.9 billion, and operating income grew 32% year over year to $2.56 billion. There is a durable tailwind for semiconductor products across both the industrial and automotive industries as more and more companies decide to digitize their products. The growth of electric vehicle manufacturing is a great example of this. This tailwind should benefit TI's demand over the next decade.
NASDAQ: TXN
Key Data Points
TI has a market cap of $162 billion. Free cash flow, management's preferred metric to measure profitability, was $6.45 billion over the last 12 months. That gives the stock a price-to-free cash flow (P/FCF) of 25. The dividend yield sits at 2.61%, giving investors a healthy stream of income each year just for owning shares. With the growing demand for semiconductors around the world, TI's free cash flow and dividend payouts should consistently grow over the next 10 years and beyond, benefiting shareholders who hold for the long term.
3. Taiwan Semiconductor: 1.57% yield
There is one more semiconductor company to look at: Taiwan Semiconductor Manufacturing Corporation (TSM +2.42%), or just TSMC. The Taiwanese manufacturer is the market leader in the semiconductor foundry industry. It has a unique business model compared to an integrated manufacturer like Intel. Instead of designing and building the chips themselves, TSMC lets other companies like Apple design chips for their electronic devices and solely focuses on the manufacturing process. This focus and decades of expertise has led TSMC to become the most technologically advanced semiconductor manufacturer in the world, with over 50% market share.
NYSE: TSM
Key Data Points
In the last 12 months, TSMC generated $59 billion in revenue and $25 billion in operating income. Management expects revenue to grow at a 15% to 20% compound growth rate through 2026 as the company rides the growing demand for semiconductors around the globe. This will give the company plenty of cash flow to support and likely grow its current 1.57% dividend yield. At a market cap of $468 billion, the stock trades at a P/OI of 18.7, which seems cheap given TSMC's dominance in the industry and a clear path to growing its financials over the next decade.
MSFT Dividend Per Share (TTM) data by YCharts
Over the last 10 years, the dividend per share for all three of these stocks has gone up by over 200%, making them some of the top large-cap dividend growers in the world. If their financials continue to grow over the next 10 years, it is highly likely this dividend-per-share growth will continue. This will build a growing stream of income for you if you buy and hold these stocks for the long haul.
