Dividend stocks are relatively rare in the tech space, as these companies tend to be more focused on investing extra cash into growth initiatives. But income investors can still find some attractive businesses that balance growth with steady dividend checks. The trick is knowing where to look.
With that goal in mind, let's look at two excellent tech businesses that also deliver immediate income in the form of quarterly dividend payments. Read on for some good reasons to buy Microsoft (MSFT 1.82%) and Garmin (GRMN 0.29%) right now.
1. Microsoft's got the cash flow
Investors can excuse Microsoft for paying a relatively small dividend today, given its many opportunities to direct cash toward high-return growth areas. Last quarter, the tech giant achieved double-digit sales gains in niches as varied as cloud services, enterprise software, and internet search. Wins here helped offset cyclical declines in the consumer electronics and video game segments.
Microsoft's yield today is below 1%, even though the company hiked its dividend by 10% this past year. Income investors can focus on cash flow, though, which points to potentially many more years of rising dividends ahead. Microsoft generated $59 billion of operating cash over the past nine months, down only slightly from the $64 billion it booked in the prior-year period. That high efficiency gave management the flexibility to boost dividend payments while still spending aggressively on stock buyback spending.
Microsoft stock has rallied in 2023, but shares are still trading below their peak valuation from late 2021. Consider adding this tech stock to your watchlist, or your portfolio.
2. Garmin can rebound
For more of a rebound story, take a closer look at Garmin stock. Sure, the GPS navigation device giant is seeing modest sales declines and weaker profit margins thanks to a pandemic growth hangover. But its diverse product lineup insulates it from weakening demand in parts of the consumer electronics space.
Sales were up 11% year over year in its fitness segment last quarter, for example, and jumped 22% in the aviation unit that provides aircraft navigation platforms. Overall, revenue dipped by 2% year over year in Q1 and is on track to rise to about $5 billion this year from $4.9 billion in fiscal 2022.
Garmin remains highly profitable, too, despite a slight pullback on this metric in recent years. Operating margin landed at 17% of sales last quarter, down from nearly 20% of sales at the pandemic's peak. The company has a good shot at moving margins back toward the high 20% range as growth accelerates and as cost increases moderate.
The stock also pays an unusually generous dividend that currently yields nearly 2.8% annually. Income investors can sit back and collect those regular payouts while they watch Garmin's new product introductions steadily boost sales and earnings over time.
While a wide recession would pressure most of its segments, shareholders have already seen the benefits of its diverse product lineup. In the past decade, Garmin navigated through short-term slumps in niches like its auto GPS division and fitness segment while keeping annual earnings rising. That track record implies that the business can handle tougher economic environments, protecting shareholder returns in the process.
