Dividends are important for any long-term investor, even those focused on the tech sector. The S&P 500 index has grown by about 830% over the past 30 years, but total return of the index, which factors in dividends, was nearly double that.
Finding tech stocks that not only pay dividends but are also likely to grow those dividends over time is a great way to invest in technology while still benefiting from regular dividend payments. Two world-class tech stocks to consider that both boosted their dividends this year are Cisco Systems (CSCO 0.06%) and Oracle (ORCL 0.22%).
1. Cisco Systems
Along with its earnings report in February, enterprise networking hardware giant Cisco declared a quarterly dividend of $0.39 per share, representing a 3% bump.
Cisco only began paying a dividend in 2011, but over the past 12 years it's steadily raised that dividend by more than a factor of six overall. The company's consistent free cash flow generation, fueled by its dominance of the Ethernet switching and routing markets, backstops the increasingly generous payout to investors.
At the current stock price, Cisco sports a dividend yield of about 3.4%. In the first six months of the current fiscal year, the company generated free cash flow of $8.4 billion and paid out $3.1 billion in dividends. While Cisco is taking it slow with the dividend increases at the moment (not a bad idea, given the uncertain economic environment), it can certainly afford to continue to increase the dividend further in the years ahead.
One thing that should help boost Cisco's profits is the company's growing software business. While the company's bread and butter is networking hardware, software accounted for about 30% of total revenue in the most recent quarter, and the majority of that software revenue is in the form of subscriptions. Some of Cisco's software products are stand-alone, while others come bundled with hardware. Either way, software should carry a higher gross margin than the core hardware business.
Cisco's results can ebb and flow with the state of the global economy, but right now the company is hitting it out of the park. Guidance calls for double-digit revenue growth in the current fiscal year despite a backdrop of economic uncertainty. With a solid dividend with room to grow, Cisco is a great tech dividend stock to own.
2. Oracle
Database and software giant Oracle became a better dividend stock in April when it boosted its quarterly dividend to $0.40 per share. That new dividend is 25% higher than the previous one, and it represented the first dividend hike since early 2021.
Even with that big increase, Oracle remains a so-so dividend stock if you only consider the yield. The dividend yield stands at just 1.7%, well below that of Cisco and about the same as the yield for the S&P 500. Oracle paid out $2.6 billion in dividend payments in the first nine months of its current fiscal year, compared to free cash flow generation of $4.7 billion.
One thing putting some pressure on free cash flow is Oracle's build-out of its cloud computing business. Capital expenditures more than doubled year over year, as Oracle aims to become a major player in the cloud infrastructure market. Revenue from infrastructure-as-a-service grew by 55% in the latest quarter to $1.2 billion, and the company has been aggressively courting users with a generous free tier. Oracle also recently made a version of its flagship database software entirely free for developers as it tries to bring new customers into its ecosystem.
Oracle is certainly not the best dividend stock, but the dividend has the potential to grow quickly in the coming years as the cloud computing initiatives pay off. Investors shouldn't buy Oracle stock solely for the dividend, but it's nice to have as you buy and hold the stock for the long run.
