If you pick the right ones, dividend tech stocks can offer a powerful combination of growth and income. Held over long time periods, these investments can compound quickly, especially if you choose to automatically reinvest those regular dividend payments.
But which of these stocks should you put in your portfolio? Below, I'll make the bullish argument for two tech specialists that look attractive right now. Read on for some good reasons to buy Microsoft (MSFT 1.82%) and Garmin (GRMN 0.29%) stocks.
1. Microsoft
Investors shouldn't let slowing tech spending keep them away from Microsoft stock. Sure, the tech giant reported just a 2% year-over-year sales increase in the most recent quarter, marking its slowest expansion rate in years. But that update illustrated several good reasons to like this business.
Microsoft posted strong growth in several key niches, including cloud services and cybersecurity. These wins offset a cyclical downturn in the PC market and a growth hangover in the video game niche. Tech investors seeking diversity will struggle to find a company that has a wider spread of exposure across areas like enterprise software, artificial intelligence, video games, and hardware.
Meanwhile, Microsoft remains one of the industry's most profitable players. The $22 billion of operating income it reported in Q4 was over 40% of sales. Those gushing earnings should help Microsoft continue boosting its dividend even during sluggish growth periods like the current one.
2. Garmin
Garmin is going through a tough growth hangover right now. Annual sales in 2023 are projected to land at about the same $5 billion that the company achieved two years prior. Two consecutive flat years are following a long streak of growth, though, that ended with a 19% sales surge in 2021.
GRMN Revenue (TTM) data by YCharts
The navigation device specialist will be back. It is growing in some major categories with sales rising in its smartwatch segment and its aviation and marine niches. Wins here in 2022 offset plunging demand for fitness devices as compared to much higher consumer interest during the pandemic. "Our performance in 2022 was solid even as we faced increasing headwinds affecting the business environment and consumer behaviors," CEO Cliff Pemble told investors in late February.
Thanks to strong earnings and cash flow, Garmin has the resources to continue investing in categories that lay the foundation for growth, such as research and development. The company has a packed pipeline of new releases on the way across a wide range of price points. Watch for those launches to support sales trends in 2023 and prime the company for a return to a more regular growth cadence in the following years.
What about their dividends?
Garmin pays a much higher dividend yield at nearly 3% compared to Microsoft's 0.9% yield. That gap partly reflects the weaker performance of the stock since early 2022, but it still means that income-focused investors will gravitate toward Garmin's stock today. Microsoft shares will provide more stability than the hardware-focused navigation specialist. Yet both dividend stocks should deliver solid long-term returns for patient shareholders.
