Although it's usually not discussed as much as stock price growth, dividends can play a huge role in investors' total returns. Paid from a company's cash profits, dividends are a way to reward shareholders for patience and potentially make up for the lack of stock price growth.
Since many tech stocks (especially younger ones) focus on growth, they often reinvest all profits into the business instead of paying a dividend. However, some tech stocks present good growth opportunities while also paying dividends. Here are three examples for your consideration.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 1.26%) (TSMC) is the global leader in chipmaking and has risen to dominance through its ability to make customized microchips that a lot of today's tech products use. From iPhones to Tesla infotainment systems to Nvidia's graphic cards, there's a good chance you own a tech product with a TSMC inside it.
Unlike most of its competitors, TSMC doesn't make general microchips to sell; it focuses exclusively on making them for third parties like Apple, Amazon, and Alphabet. This approach has worked wonders for the company's revenue and profits. Although its $16.7 billion in revenue in Q1 fiscal year (FY) was down 4.8% year over year (YoY), it's still a huge leap from just five years ago.
Data by YCharts
TSMC's profits outpacing its revenue over that span is also impressive and shows the company is beginning to operate more efficiently. This should pay off as the demand for semiconductors increases, with more industries undergoing digital transformations and technologies like AI emerging into the mainstream.
Its current quarterly dividend is $0.49 per share, with its dividend yield hovering around 1.8%. It's not wowing per se, but it's still better than the S&P 500's average dividend yield. If you're looking for a higher yield, my next pick could be just what you needed.
2. AT&T
AT&T's (T 1.02%) stock price has been beaten down the past five years, down over 34%. Luckily, investors don't generally flock to AT&T expecting growth stock-like returns; it's all about the dividend.
After an ill-advised attempt at entering the media and entertainment industry, AT&T spun off its WarnerMedia business in a $43 billion deal that also came with a dividend slash. Even after cutting its dividend in half last year, AT&T still holds an impressive yield of around 7%, making it one of the more lucrative S&P 500 companies.
AT&T has a lot of long-term debt on its balance sheet ($123 billion), but its free cash flow should ensure it can continue to pay it down -- especially in the current high-interest rate environment -- while keeping its dividend healthy.
With admitted missteps with its media attempts and a refocus on its core telecom business, AT&T's upside far exceeds its downside, in my opinion. The company continues to add customers at an impressive rate, and it's operating in an industry that's indispensable in today's world.
There may be bumps along the way, but the dividend should give investors a natural safety net. And if you want a stock that will raise its payouts in any economy, look no further than my third selection.
3. IBM
IBM (IBM -1.05%) has been around since 1911 and has paid a dividend since 1913. It's not your flashy, young growth stock, but it's efficient.
IBM has recently taken steps to bolster its AI offerings (surprise, surprise) and become a more attractive option for corporate clients rushing to tools and offerings that can increase their productivity. IBM hasn't benefited from the tech rally this year, with the stock actually down year to date.
The company recently announced the $4.6 billion acquisition of Apptio, a FinOps company that should better allow IBM to position itself as the go-to company for corporations looking to operate more efficiently. It also allows IBM to further build out its ecosystem and bolster its AI-based offerings.
There's still some uncertainty surrounding IBM, but it presents a compelling opportunity because of its dividend. The 5% dividend yield is high enough to justify waiting to see if the AI upside plays out. If it does, consider it a two-for-one. If it doesn't, a 5% dividend yield isn't to be frowned upon.
IBM has increased its annual dividend for 28 straight years, and its free cash flow is more than $3 billion than it paid in dividends last year. This should give investors extra confidence in its stability and continued growth.
