Which sector is the best to find excellent dividend stocks? That's a tricky question, but the technology sector is usually not the first that comes to investors' minds when considering dividends. However, that doesn't mean it's impossible to find corporations that will appeal to income-seekers among the dozens of technology companies on the market. Here are two that deserve serious consideration for long-term investors: Apple (AAPL -0.35%) and eBay (EBAY 1.32%).
1. Apple
Apple is an outstanding dividend stock despite its admittedly unimpressive yield of just 0.54%, much lower than the S&P 500's 1.54%. But that's where the disappointment ends. The tech giant has increased its dividends at a steady rate over the past 10 years, it boasts a highly conservative cash payout ratio that shows it can sustain plenty more increases, and most importantly, the dividend is backed by an incredibly resilient business with plenty of growth prospects.
AAPL Dividend data by YCharts.
The company has become an expert at putting its own spin on existing tech and making its version extremely popular -- from the iPhone to AirPods. Apple's brand loyalty means it can charge what may sometimes seem exorbitant prices for its devices, and it continues to generate solid revenue even during challenging economic times when no one needs a new phone, much less one that costs hundreds of dollars.
But Apple's most exciting growth avenues arguably lie in its services segment. The company has created a large ecosystem of more than 2 billion people who use its devices. It provides them with various services, from Apple Pay to iCloud to Apple Music. Manufacturing hardware is an expensive business that carries relatively low margins. By contrast, Apple's services unit carries much juicier margins. And as long as its ecosystem grows, Apple can find more ways to monetize its user base. Apple TV+ hasn't been around for that long. In recent years, Apple has also sought to make a stronger push within the highly promising fintech industry.
That's just two of the most promising examples. One of the strengths of Apple's ecosystem is that it boasts high switching costs. Even something as seemingly simple as migrating data from an iPhone to an Android device can be annoying. Further, once customers are plugged into Apple's ecosystem, they get all sorts of small but useful perks they would lose by leaving. For instance, Apple's devices interact with each other in neat and surprisingly helpful ways.
Apple's innovative capabilities and economic moat have been the engine behind its growth story over the past decade. The next 10 years won't be that different, in my view. Apple should make significant headway within its services segment while remaining a hardware giant. Strong revenue, earnings, and free-cash-flow growth will follow, and, of course, Apple will also reward shareholders with increasing dividends.
2. eBay
eBay was a bit of a pioneer in the e-commerce industry. The company has been around for well over two decades, and in that time, competition in the field has gotten significantly more fierce. That's part of what's been hindering eBay's growth. The company's top-line growth has been somewhat lackluster for years, although it experienced a spike in 2020 -- like other e-commerce leaders.
EBAY Revenue (Quarterly YoY Growth) data by YCharts.
eBay's number of buyers has also been declining, for the most part, since before the pandemic. However, there are plenty of redeeming qualities for eBay. First, the company is looking to turn things around. One of its strategic initiatives that is paying off is the greater focus on its advertising business through its promoted listing offering, where it allows sellers on the platform to promote their products and boost visibility on its website, thereby leading to more conversions.
In the second quarter, eBay's first-party ad business delivered revenue of $341 million, 47% higher than the year-ago period, largely thanks to its promoted listing products. eBay's total revenue of $2.5 billion increased by just 5% compared to the year-ago period. eBay is pivoting its business in other ways, for instance through its focus categories segment. These categories include items many buyers are passionate about (and spend a lot of money on), such as watches, sneakers, trading cards, parts and accessories, etc.
The e-commerce sector still has plenty of growth ahead, and eBay's top line should continue to move in the right direction -- and at a faster rate -- as it homes in on these (and other) opportunities. Second, eBay benefits from the network effect, like many other e-commerce giants. More sellers on the platform will attract more buyers, and vice versa. Knocking eBay out as one of the leading and most recognizable e-commerce companies will be difficult.
eBay hasn't been paying a dividend for long. It started doing so only in 2019. But in that time, the company has raised its payouts consistently.
EBAY Dividend data by YCharts.
eBay offers a yield of 2.32%. And its cash payout ratio of about 22% suggests plenty more room for dividend hikes. In the next 10 years, I expect eBay to make solid headway with its strategic initiatives, remain an e-commerce leader, and maintain the dividend streak it has had over the past few years.
