There is never a wrong time to start investing in dividend-paying stocks. The sooner you do it, the better. The true power of income-generating stocks lies in letting them work their magic for many years or even decades -- collecting cash to share with stockholders and raising those quarterly payouts year by year.
Great dividend payers are rare in the tech sector. Here, spare cash is more often reinvested in growth-boosting new products, services, and infrastructure instead of lining shareholders' pockets. But there are some fantastic income investments available right now, even where Wall Street crosses Silicon Valley.
I have found two tech titans who send out generous dividend checks like clockwork, though they missed the memo about the rising tech stocks trend of 2023. The pure mathematics of how dividend yields are calculated means that low buy-in prices also set them up for amplified dividend gains. These two stocks offer a rare blend of promising business growth and dividend distributions, combining to build your wealth in the long run.
IBM
Once upon a time, International Business Machines (IBM -1.05%) was the envy of the tech sector. From the turn of the millennium to 2011, many industry rivals were attempting to copy IBM's one-stop-shop business model, offering everything from software and services to big-iron computers those products would run on.
Big Blue's strategy took a sharp turn at that point as CEO Ginni Rometty started to deconstruct and rebuild the company. The long-term vision was to create a cloud computing giant with a leaner, meaner, and more profitable product portfolio. IBM sold or spun off most of its hardware operations, from data storage and retail point-of-sale systems to data center servers, stripping away its least profitable legacy operations to refocus on cloud-based software with a heavy dose of artificial intelligence (AI) smarts.
When Rometty handed off her reins to her successor, the shift only underscored IBM's commitment to cloud computing and AI. Current CEO Arvind Krishna rose to the top through IBM's cloud and cognitive software division. The chief architect of the game-changing Red Hat acquisition also led IBM's research in blockchain technology, quantum computing, and AI systems for many years.
Arguably, there are very few, if any, tech companies better positioned than IBM to capitalize on the AI boom. So I expect the company to emerge as a leading AI business over the next couple of years, with a specific focus on business-to-business tools and services. Big Blue will gladly let others worry about the more temperamental consumer side of the AI opportunity.
And from an investor's point of view, it's hard to beat IBM's commitment to a robust dividend policy. When the company has plenty of surplus cash profits available, its annual payouts tend to rise quickly. The gains are slower in the lean years, but the payouts go relentlessly upward anyhow.
The annual payout boosts are on an unbroken streak of 30 years now, going all the way back to the mid-1990s. The stock is down 5% year to date, cementing the dividend yield at 5%. I highly recommend giving IBM a second look if you're interested in strong dividends or promising technology services -- because this blue chip dividend stock gives you both.
Cisco Systems
Network equipment giant Cisco Systems (CSCO -0.50%) can't quite match IBM's stellar dividend history, but the company makes up for it with a proven cash machine of a business model and ultra-reliable long-term growth. If IBM's lack of sales growth concerns you, Cisco might be just what you're looking for instead.
Unlike IBM, Cisco isn't spinning off major operating divisions in a wholesale strategy shift. Instead, the company is doubling down on what it always did best. In the words of CEO Chuck Robbins, "We securely connect everything to make anything possible." Where there is data to move across a data center, from one end of your city to another, or between distant locations, Cisco has the networking hardware you need. From consumer-grade cable modems to enterprise-class or telecom-grade data switches, they all come with built-in security features and AI-powered network management tools.
This industry is teeming with veterans and upstarts, but Cisco stands head and shoulders above them all with annual sales orders of magnitude ahead of its rivals. Many of these networking alternatives are also great businesses, but they can't hold a candle to Cisco's decades of market-leading expertise.
Cisco started its dividend policy as recently as 2011 but has boosted its annual payout every year since. The yield stands at a robust 3.1% today, partly thanks to its stock chart moving sideways over the last five years. The payouts never stopped rising.
The networking giant still has a stranglehold on its chosen target market, and I don't expect anyone stealing Cisco's lunch in the foreseeable future. So it's a good idea to pick up some Cisco shares on the cheap, locking in a modest buy-in price with a generous effective dividend yield.
