The stock market has been a favorite destination for those seeking investment income in recent years, as yields for traditional income-paying investments such as bonds and bank CDs have dried up in the low-interest rate environment imposed by the Federal Reserve. The popularity of dividend-paying stocks has never been higher, pushing prices of conservative blue-chip stocks with solid dividend yields up to levels not seen in years. Yet even as corporate America has embraced the value of returning capital to shareholders through increased dividend payouts, one industry few investors ever previously looked toward for greater cash payments has made dramatic dividend hikes of its own.
Tech dividends on the rise
In just the past 24 hours, tech stocks have been in the headlines for making big dividend moves. Last night, Apple (NASDAQ:AAPL) once again reclaimed the throne as the top dividend-paying stock in the market, with an 11% increase in its quarterly payout to $0.52 per share. Given the huge increase in Apple's stock price, the tech giant's dividend yield will remain a relatively unremarkable 1.6%, which is less than the market's overall average. Yet when you consider how many shares Apple has outstanding, the total it pays out in dividends annually will eclipse the next highest dividend stock, ExxonMobil (NYSE:XOM), pointing to the value of combining growth and income in a single stock.
Not to be outdone, IBM (NYSE:IBM) followed up with a dividend increase of its own. Big Blue said it would boost its quarterly payout by 18% to $1.30 per share, giving the venerable tech company a 3% dividend yield. IBM hasn't had nearly the success that Apple has enjoyed lately, as it has faced difficulty in adapting to the rapidly changing landscape in cloud computing and data analytics. The company rightly anticipated that diversifying beyond hardware would be essential in maintaining a competitive edge, but its efforts to divest its poorest-performing businesses and accentuate its best prospects haven't paid off yet. Still, those with confidence in IBM's history of turnarounds can breathe easier knowing they'll gain consistent dividend income while they wait.
Looking beyond dividends
Of course, dividends aren't the only way companies can reward shareholders. Apple also announced it would boost its stock buyback authorization from last year's $90 billion up to $140 billion over the next couple years. IBM also used buybacks extensively as part of its now-abandoned effort to reach $20 per share in earnings by this year. Some investors prefer buybacks because they push the stock price up without paying out income that is potentially subject to tax for some shareholders, but others note that companies have a questionable track record of timing their share purchases well.
For those who need the cash, though, higher dividends are a good thing, and the technology industry has recognized the value of payouts in attracting investors. Going forward, expect tech stocks to keep paying more dividends as their businesses mature and generate more cash to pay out to shareholders.
Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, ExxonMobil, and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.