Dividend stocks are always welcome as the rock-solid foundation of any long-term investing portfolio. However, exaggerated dividend yields can also serve as red flags for companies with severe financial stability issues. Because of this duality, you should always start your dividend investment moves by ensuring you're only grabbing shares of robust businesses with unshakable long-term prospects. After all, the real wealth-building magic of those payouts only kicks in when you hold the same dividend-paying stock for decades.
So let me show you three dividend payers in the tech sector built for decades of shareholder-friendly success. Both aspiring and experienced income investors should consider picking up some shares of Universal Display (OLED 0.09%), Texas Instruments (TXN 0.25%), and Applied Materials (AMAT 0.73%) these days. Any of these stocks should serve your portfolio well, especially if you reinvest your dividend checks in more of the same stock and leave that setup untouched for many years.
What these companies do
The stocks under our microscope today look very different at first glance.
Texas Instruments is an experienced innovator in semiconductor technologies. Its bread-and-butter markets are in analog processors and low-power embedded circuits, though most consumers may know the company for its calculators.
Universal Display develops the technology behind the organic light-emitting diode (OLED) screens you see in smartphones, tablets, and high-end TV sets today. Looking ahead, this company plans to expand its OLED products into new mass-market opportunities such as lighting panels, rollable or foldable screens, and transparent displays.
Applied Materials makes machines, software, and materials that are required for manufacturing advanced products such as semiconductors, solar panels, and digital displays. It's hard to find electronics on the market today that haven't been touched by Applied Materials' products during their manufacturing process.
Their dividend credentials
Dividend investors will quickly notice that Texas Instruments offers a robust yield of 3% today. Applied Materials and Universal Display stand well below that generous rate at 1.1% each. However, all three are above-average dividend payers in the tech-heavy Nasdaq market, where the average yield works out to just 0.6%.
All three are consistently financing their dividend payouts from free cash flows -- with room to spare. Texas Instruments funneled 62% of its free cash into dividend checks over the last four quarters. Universal Display's cash-based payout ratio stopped at 25% over the same period, while Applied Materials sent out just 17% of its cash profits in the form of dividend checks.
And here's the best part: These dividends are growing over time.
TXN Dividend data by YCharts
AMAT Dividend data by YCharts
OLED Dividend data by YCharts
Furthermore, these high-quality businesses were dragged down in the inflation-powered market rout this year. All three have robust long-term business prospects and should get back on their feet when this market panic fades away. Until then, you can pick up their stocks at significant discounts from recent highs at modest valuation ratios.
With generous dividend policies, robust cash flows, and clear growth plans in the years ahead, those modest share prices should seal the deal. All in all, this looks like a great time to start an income-generating investment in Applied Materials, Universal Display, or Texas Instruments.
