Technology stocks once held a reputation for not paying dividends. In the beginning, these were emerging growth names that felt they could invest their capital more effectively in themselves.
Today, most companies with the highest market caps are tech stocks, which brought a level of maturity that has inclined more of them to pay dividends.
Fortunately, many tech dividend stocks pay well above the S&P 500 (^GSPC -0.17%) average of 1% and sometimes offer periodic payout hikes. Knowing that, investors might want to take a closer look at these two names.
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1. IBM
International Business Machines (IBM -1.19%) is one of the few tech stocks to have paid a dividend for several decades. It has periodically shifted its business to stay at the cutting edge of tech for most of its 115-year history.
Today, the company stands out primarily for its cloud technology and research in quantum computing. Although it is not as fast-growing as some of its counterparts, income investors will like that it has maintained a multidecade streak of payout hikes.
Indeed, investors became skittish when IBM fell 25% in one day amid shifting IT spending patterns, prompting some investors to ask whether IBM's dividend is still safe.
Fortunately, that answer is likely yes. This year, it delivered its 31st consecutive yearly dividend increase. Today, it pays shareholders $6.76 per share annually, yielding about 2.9%.
That dividend cost IBM about $6.3 billion over the previous year. Fortunately, it generated $14.6 billion in free cash flow over the same period, suggesting it can maintain the payout and annual increases.
NYSE: IBM
Key Data Points
Additionally, IBM's cloud transformation under CEO Arvind Krishna has boosted the stock. Over the last five years, IBM has outperformed the S&P 500, and one can argue that a 21 P/E ratio makes this a reasonably priced stock.
Hence, not only do IBM shareholders receive a generous payout, but they can also benefit from a stock that has become an excellent growth-and-income name.
2. HP
HP (HPQ -3.80%) is another well-established tech giant. Originally founded as Hewlett-Packard in 1939, the company remained relevant over the decades by adapting. This included a split from its business segment, which became Hewlett Packard Enterprise in 2015.
Today, HP is a leading seller of computers, printers, and 3D printing solutions. Admittedly, this part of the tech business has not attracted as much attention as others in recent years. Nonetheless, it has generally delivered revenue and earnings growth over the years, and that has funded a growing dividend.
Its payout is now $1.20 per share annually and has increased for several years. Between the stock's struggles and payout hikes, its yield has risen to more than 4.1%.
Moreover, investors do not have to worry about sustainability. Over the trailing 12 months, free cash flow was almost $3.8 billion, well above the nearly $1.1 billion in dividend costs.
Key Data Points
The company's stock performance has been flat in recent years. However, a P/E ratio of 11 lowers the risk of buying this stock, meaning income investors can still benefit from a generous dividend return that will likely keep growing year after year.
