When many people think of tech companies, they think of growth stocks. It makes sense, considering many of the top growth stocks over the past couple of decades have been tech companies. However, plenty of tech companies can also provide reliable income via dividends.
Many larger tech companies are cash cows, allowing them to reward shareholders aside from just stock price appreciation (which isn't guaranteed). If you're looking for dividend-paying tech stocks, the following three are good options with above-average yields.
1. International Business Machines
International Business Machines (IBM -1.05%), better known as IBM, doesn't get the attention the "Magnificent Seven" stocks do, but it has been a tech titan in its own right for a while. Artificial intelligence (AI) made its way to the mainstream in 2023, but IBM is one of the pioneers of the technology, dating back to the 1950s.
IBM's quarterly dividend is $1.66, with a trailing-12-month yield of around 4.4% -- around 3 times higher than the S&P 500 over that span. IBM has increased its annual dividend for 28 consecutive years, and there's no reason to believe this will change anytime soon. Its free cash flow is more than enough to cover its dividend obligations.
IBM Free Cash Flow Per Share (Quarterly) data by YCharts
Although IBM's stock finished 2023 up 14%, it underperformed the S&P 500 by 9%. Some of its recent stock price underperformance over the years can be attributed to its transition away from legacy businesses like on-premise products to more high-growth industries like the cloud and cybersecurity.
This transformation hasn't been the quickest, and those high-growth areas are highly competitive, but IBM is making significant investments to make it happen. In the meantime, its lucrative dividend should help investors practice a bit more patience while the transformation takes place.
2. Cisco Systems
Cisco Systems (CSCO -0.50%) became the $200 billion company it is today through its networking hardware, including routers and modems, security products, and switches. It has since expanded its business to include services in the cloud, Internet of Things (IoT), and cybersecurity industries.
Cisco's year-over-year revenue growth has slowed from previous quarters, but some of that can be attributed to its enterprise customers deploying their hardware slower than usual. When this happens, Cisco may not recognize the revenue (meaning record it on its financial statements) until later quarters. During Cisco's latest earnings call, CEO Chuck Robbins noted this lag could affect the company's revenue for the "next couple of quarters."
Unlike many other big tech stocks, Cisco's stock didn't see explosive growth in 2023, only increasing by just over 5%. Thankfully, it has an above-average dividend to pick up some of the slack. Cisco's quarterly dividend is $0.39, with a trailing-12-month yield of just over 3%.
Cisco is facing near-term problems, but its attractive dividend and low valuation (forward price-to-earnings ratio of 13) give it much more upside than downside in the long term.
MSFT PE Ratio (Forward) data by YCharts
3. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 1.26%) (or TSMC) is the global leader in semiconductor (chip) production. Its foundry model -- which involves making chips for its clients' specific needs instead of general sales -- has driven the company to become one of the most important tech companies in the world. Its clients include Apple (iPhone), Nvidia (GPUs), Tesla (electric vehicle components), and many other world-class companies.
TSMC's quarterly dividend is $0.48 (accounting for the currency conversion rate), with a yield of just over 1.9%. It's an above-average dividend yield that acts as a true two-for-one benefit, given TSMC's stock price growth potential. Over the past decade, it has outpaced the S&P 500 considerably, and an AI-fueled boost should keep the momentum going.
TSM Total Return Level data by YCharts
TSMC doesn't deal directly with AI, but its chips are vital to many of the companies that do. Without TSMC's chips, there are no advanced computing powers; without advanced computing powers, there's no efficient data processing; without efficient data processing, there's no AI as it exists today.
Although there are other semiconductor companies, TSMC's chips lead the way in performance.
AI hasn't had a tangible effect on TSMC's financials yet, and there's no way to say for certain the impact it'll have. But it's likely to be a nice addition to a company that is integrated into many different industries.
