The tech sector is one part of the market that is glad to turn the page on 2022 and move on to 2023. The tech-heavy Nasdaq was down about 34% for the year, while the Technology Select Sector SPDR ETF was down 29%. Many popular but unprofitable or early-stage stocks were down even more.
However, many dividend-paying tech stocks weathered the storm far better than the sector as a whole. These dividend-paying tech companies are profitable and usually feature more mature, durable businesses. Paying a dividend not only rewarded their investors with recurring income, but it also helped them to avoid the steep losses seen by many tech stocks in 2022.
Going forward, this looks like a sensible part of the market to continue investing in, as it gives investors income and defensiveness in the event of a down market in 2023 while giving them upside by giving them exposure to the powerful long-term trends of technology. Here are three great dividend-paying tech stocks to buy right now.
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1. Texas Instruments
NASDAQ: TXN
Key Data Points
When discussing dividend-paying tech stocks, Texas Instruments (TXN +0.31%) is a great place to start. Not only do shares of the analog semiconductor giant currently yield a market-beating 3%, but the company has increased its annual dividend payout for 19 years in a row. This dividend payout has grown at an incredible 25% compound annual growth rate over that time frame. This coincides with current CEO Rick Templeton taking charge of the company. Templeton has consistently prioritized growing free cash flow per share and creating value for shareholders. In addition to dividends, Texas Instruments has returned capital to shareholders by using share buybacks to reduce the company's share count by an incredible 46% since 2004.
In addition to this magnificent track record of shareholder returns, the stock looks like it offers plenty of upside, sitting at the precipice of some powerful long-term growth drivers. Chipmaker Intel forecasts global semiconductor demand to grow from $600 billion now to $1 trillion annually by 2030. Within semiconductors, Texas Instruments specializes in analog and embedded chips, which make up 90% of its revenue. Analog chips are needed for all electronic devices, and embedded chips are needed for most.
Texas Instruments is well diversified, with an incredible product portfolio of 80,000 products and 100,000 customers across a wide array of industries. The company's two largest end markets, industrial and automotive, make up just over 60% of its revenue, and personal electronics, communications equipment, and enterprise systems are other key end markets for the company. Texas Instruments should continue to benefit over the long term as more chips go into more applications ranging from cars to industrial machinery to Internet-of-Things (IoT)-enabled devices.
Shares of Texas Instruments fell about 11% in 2022, but this was a far better performance than the Nasdaq or VanEck Semiconductor ETF which tracks the space and was down 34% in 2022. With an illustrious track record of shareholder returns and a leading position in an area of the market with large and growing demand, Texas Instruments continues to look like a great buy for investors.
2. Broadcom
NASDAQ: AVGO
Key Data Points
Staying within the semiconductor space, Broadcom (AVGO 4.11%) is another top dividend-paying tech stock. While the broader semiconductor industry struggled with oversupply issues in 2022, Broadcom brushed off the challenges and posted impressive 21% revenue growth during the most recent quarter.
Broadcom is notable in that while it derives about 70% of its revenue from semiconductors, it also has a large software business. It is in the middle of trying to complete the acquisition of cloud computing giant VMWare, which would bring it into the large and lucrative cloud market. Like Texas Instruments, it is well diversified -- its semiconductors are everywhere, serving a wide variety of end markets, including smartphones, data centers, networking, and broadband access. It expects business segments like storage connectivity, broadband, and networking (currently its largest segment) to grow 50%, 30%, and 20% year over year, respectively, during the first quarter of 2023, which should help to more than make up for expected low-single-digit growth in its second-largest segment, wireless.
Like Texas Instruments, Broadcom stock was down in 2022, but its decline of about 16% was far better than that of the broader Nasdaq or the VanEck Semiconductor ETF. Its dividend and attractive valuation of just 13 times forward earnings continue to give it a solid margin of safety for investors in 2023. Shares of Broadcom currently yield a compelling 3.3%, and the company has increased its annual dividend payout for 11 straight years and counting.
3. IBM
NYSE: IBM
Key Data Points
Beyond the semiconductor space, IBM (IBM 0.56%) is another top dividend-paying tech stock with an outstanding track record when it comes to returning capital to shareholders. IBM has increased its annual dividend payout for 28 years in a row, and shares currently yield 4.7%.
For years, shareholders (and critics) bemoaned the fact that IBM lagged the performance of large-cap tech peers, but in 2022, IBM trounced the competition with a positive return of 5% while peers (and competitors in the cloud) like Amazon and Alphabet fell about 50% and 40%, respectively. IBM outperformed during a tough market thanks to its strong dividend, reasonable valuation (the stock trades at a forward price-to-earnings multiple of under 15), and improving fundamentals.
The company continues to look well positioned as it continues to execute on CEO Avrind Krishna's transformation of the company, in which IBM has shifted its focus toward the hybrid cloud while shedding its slower-growing and less profitable IT services business in the Kyndryl spinoff.
These dividend-paying tech stocks were able to fare better than the tech sector as a whole in 2022. Looking ahead, these are high-quality businesses that offer investors a compelling combination of long-term upside plus a margin of safety and recurring income thanks to their market-beating dividend payouts and reasonable valuations.
