3 Dividend-Paying Tech Stocks To Buy in September

For many, September means the end of summer and the start of a new school year. For investors, September is another month to find and hold the stocks of great companies. While many stocks in the tech sector don't pay dividends, some do. Finding those companies and making them part of a diversified portfolio can mean both capital appreciation and a steady stream of dividend income.

After recent earnings results, I think Apple (AAPL -1.09%), Microsoft (MSFT -0.97%) and Nvidia (NVDA -7.10%) are three quality businesses and reliable dividend payers that will continue to grow and appreciate over time. Let's dig in to see why.

A shifting focus on services

Everyone knows Apple because of its hardware devices. Its category-defining iPhone, iPad, and Apple Watch still drive sales today. However, in the background, Apple's services revenue is slowly becoming an important part of the business.

Services is a segment of Apple's revenue that encompasses things like AppleCare, advertising, cloud storage, digital content, and payments. In Apple's most recently reported quarter, quarter three of 2022, services revenue grew 12% year over year (YOY) and now represents 24% of overall revenue.

The fact that services revenue now represents almost a quarter of overall revenue is important to Apple's bottom line. Services has a gross margin of 72%, considerably higher than the 35% gross margin for hardware products. Put simply, the more services revenue, the more profitability.

This profitability and Apple's incredible cash flow have allowed it to return billions in capital to its shareholders. In the third quarter, Apple repurchased $21.7 billion of its shares. This continues a long trend, as Apple has reduced its shares outstanding by nearly 22% over the past five years.

Apple's dividend yield is currently 0.58%. While that's nothing to write home about, it's a nice bonus on top of the share repurchases and the capital appreciation seen in the stock price. Over the past five years, Apple stock has outperformed the S&P 500 by over 225%.

Impressive growth led by its cloud business

Considering its size, Microsoft's YOY growth is very impressive. Recently, the company reported its fiscal 2022 results, and every segment of its business saw double-digit revenue growth and strong operating income increases.

Data source: Microsoft. Chart by author.

Of particular note is the strength of the intelligent cloud business, which includes Azure and other cloud services. Intelligent cloud now accounts for 38% of Microsoft's overall revenue and 39% of its total operating income. To illustrate the growth, those metrics in 2021 were 36% and 37%, respectively.

Microsoft's Azure cloud infrastructure has approximately 21% of the global market share, placing it behind only Amazon's 34%. Considering the cloud infrastructure market size is estimated to expand at a compound annual growth rate (CAGR) of 18% through 2028, Microsoft should see continued growth in this segment simply from the expanding market size.

Much like Apple, Microsoft has been repurchasing shares, but at a much slower pace. Over the past five years, shares outstanding has only decreased by 3.3%. Over that same time frame, Microsoft's stock price is up 275%, compared to 75% for the S&P 500. This market-beating performance is aided by Microsoft's dividend, which currently yields a modest 0.97%.

Diversification to weather headwinds

When chipmaker Nvidia reported earnings recently, the headline numbers were all about the slowing revenue, especially in its gaming segment, which saw sales decrease 33% YOY and 44% sequentially. Considering gaming accounts for 30% of revenue, this decrease was significant.

However, this is a case where investors would be wise to zoom out. Yes, gaming has hit a short-term bump in the road due to macroeconomic factors, but if we think about gaming as an industry, it's hard not to be bullish.

The gaming market is estimated to grow at a 12% CAGR between 2020 and 2025, with an increase in total market size of $126 billion. Despite the recent results, in the long run, Nvidia should be fine serving an industry with expected growth ahead.

Additionally, the gaming results obscured some fantastic gains in other segments. Nvidia's automotive segment's revenue increased 45%, and data center revenue grew 61%. Combined, these two segments account for 60% of overall revenue. This illustrates the strength of Nvidia's business. Despite being in a cyclical industry, the company's diversification of revenue streams helps it weather short-term challenges in certain segments, as we saw with gaming recently.

Of the three stocks discussed here, Nvidia's 0.12% yield is the lowest by far. However, investors are still getting strong growth and a balance sheet that positions the company to continue paying and increasing the dividend over time. Nvidia has generated $6.6 billion in free cash flow and seen its stock return 224% over the past five years.

Why should investors buy now?

You can find stocks with better dividend yields, but often, those companies are slow, steady growers that don't provide much in capital appreciation. With these three companies, investors get impressive long-term growth with a modest dividend that I consider the icing on the cake.