Income-seeking investors rarely consider tech companies as investments, and for a lot of good reasons. Technology can be easily disrupted, leaving a once-profitable company behind the curve, and out in the cold.
However, there are a few tech companies that pay great dividends, generate tons of cash making the dividend sustainable, and have both massive competitive advantages, and powerful innovation and R&D helping them remain relevant. Let's take a deeper look at these companies. One or more might be perfect for your portfolio.
Changing the way people think of computers
Apple Inc. (NASDAQ:AAPL) has always been at the forefront of innovative personal computing, going back to the company's founding. Over the past decade, the iPhone and iPad have all largely changed the way people interact with and use computers -- and the Apple Watch may soon do the same. While Apple is rarely the first to market with a product -- the iPhone came years after BlackBerry and Palm products were available -- it's typically been at the forefront when it comes to capability and design.
And while these are somewhat esoteric and hard to measure when it comes to value creation, what is sometimes missed with Apple is its value as a status brand. Apple invests significant time and effort into making its products beautiful as well as functional, and world-class industrial design expert Jony Ive heads up both product design, and product interface. Apple's position as a top-shelf brand -- and the industry-leading margins it commands -- is well protected because of its focus on great and usable products that consumers will love to use and be seen using. That has proved incredibly hard to disrupt.
The backbone of how we use computers today
Cisco Systems, Inc. (NASDAQ:CSCO) technology is central to almost everything about the modern connected world. Cisco estimates that more than 13 billion different things are connected to the Internet today, up more than 50% since 2012 alone. Looking forward, there will be 50 billion connected devices around the world in 2020, ranging from traditional computers to smartphones, but there is also a growing number of other things such as industrial devices, consumer appliances, and even bio-medical implants.
Cisco is at the forefront of providing the technology and the tools to bring these new generations of things to the Internet. It may be the most important company you don't know much about, in terms of how the modern world will communicate and work in coming decades.
Intel Corp.'s (NASDAQ:INTC) "Intel Inside" marketing message may seem less relevant today than ever, but this is less true than it seems on the surface. Sure, there's no denying the growth in popularity of ARM Holdings Plc's (NASDAQ:ARMH) chipsets in mobile products. ARM's architecture has worked very well in low-power, relatively high-performance applications like smartphones and tablets, but this isn't the end-all, be-all for Intel.
Intel's strength in servers and its growing position in developing processors and SoCs for specific applications shouldn't be overlooked as a source of strength, especially as the world moves closer to that number of 50 billion connected devices. A lot of those products won't be smartphones, and a lot of them will feature Intel chipsets and SoCs.
Value and dividend support
All three of these companies have enormous cash positions and very little debt, and they generate enough free cash to easily support their current dividend payouts:
The current dividend payout (as measured by payout ratio) is not only sustainable, but there's also a lot of room for these companies to increase payouts if they see that as the best use of capital.
Another couple of data points worth noting:
All three companies are using excess cash to repurchase shares as well, and this is further increasing their abilities to maintain and grow their dividends. And while Cisco and Intel have experienced some short-term weakness in free cash generation, the long-term trend reflects growth in this important metric.
Sustainable cash generation, solid management, and sustainable trends
All three of these companies are well positioned to maintain the significant market share they all command in their core businesses, while also investing in the technologies that will drive the future of our connected world.
If you're looking for a stable technology company with a dividend that should grow over time, Apple, Cisco, and Intel are all worth a closer look.
Jason Hall owns shares of Apple, Cisco Systems, and Intel. The Motley Fool recommends Apple, Cisco Systems, and Intel and owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.