The technology sector has long been synonymous with growth and innovation. However, many tech companies are now maturing into highly profitable enterprises that return ample cash to shareholders through dividends. In fact, the tech sector‘s contribution to overall S&P 500 dividend payouts has risen from just 5.7% in 2007 to over 18% today, according to data from S&P Dow Jones Indices.
For investors seeking a compelling blend of income and growth, dividend-paying tech stocks warrant a closer look. Many sport attractive yields, trade at reasonable valuations, and offer exposure to powerful secular growth trends. Of course, dividend sustainability is critical, so a focus on durable competitive advantages, robust free cash flow generation, and sound balance sheets is key.
In this article, we‘ll take a deep dive into 10 of the most attractive tech stocks for dividend investors. Each name will be analyzed across key factors like business model, financial performance, dividend history and safety, risks and challenges, and valuation. By the end, you‘ll have a strong grasp of the overall tech dividend landscape and how these stocks can fit into a diversified income portfolio.
Key Stats for Featured Companies
| Company | Ticker | Dividend Yield | 5-Yr Dividend CAGR | Payout Ratio | Consecutive Annual Increases |
|---|---|---|---|---|---|
| Microsoft | MSFT | 0.81% | 10.0% | 30% | 18 years |
| Apple | AAPL | 0.53% | 116% (since 2012) | 15% | 10 years |
| Broadcom | AVGO | 2.25% | 49.8% | 50% FCF | 12 years |
| Texas Instruments | TXN | 3.01% | 26.0% | 60% | 19 years |
| Cisco Systems | CSCO | 2.71% | 19.0% | 50% | 12 years |
| Qualcomm | QCOM | 2.92% | 8.0% | 60% | 20 years |
| Automatic Data Processing (ADP) | ADP | 1.61% | 48 years | 55-60% | 55-60% |
| International Business Machines | IBM | 4.48% | 7.0% | 5-yr avg. | 28 years |
| Intel | INTC | 1.85% | 5.3% | Low | 8 years |
| Accenture | CAN | 1.43% | 10.0% | < 40% | 17 years |
1. Microsoft (MSFT)
Microsoft is a global software giant that has successfully pivoted its business to cloud computing. Its Azure cloud infrastructure platform, along with cloud-based versions of Office 365 and Dynamics business software, are powering strong growth and more recurring revenue. The company‘s legacy Windows and on-premise server offerings provide stability and ample cash flow.
Over the past decade, Microsoft has grown earnings per share at an 18% compound annual rate while generating over $140 billion in cumulative free cash flow. Profit margins have expanded from the mid-20% range to nearly 40% over that period. This stellar financial performance has enabled robust dividend growth. Microsoft has raised its payout for 18 straight years at a 10% annualized clip.
Looking ahead, Microsoft appears well-positioned for continued growth thanks to strong competitive positioning across its business lines. More enterprise workloads are migrating to the cloud, where Microsoft is a clear leader alongside Amazon Web Services. This trend has a long growth runway. And Office remains the dominant productivity suite globally, with a growing subscription revenue stream.
Risks to monitor include growing regulatory scrutiny of large tech companies and potential cyclical pressures on IT spending. However, Microsoft‘s strong balance sheet ($130 billion net cash) and diversified business mix help mitigate these risks. With a reasonable payout ratio near 30% and a proven track record of dividend growth, Microsoft is an attractive core holding for income growth portfolios.
2. Apple (AAPL)
Apple needs no introduction as the world‘s most valuable company. Its iconic iPhone kicked off the smartphone revolution and remains a cash cow. But Apple has adeptly diversified its revenue mix to lessen dependence on hardware sales. Its services segment (App Store, Apple Music, Apple Pay, etc.) is now a $20 billion quarterly business growing at a healthy clip.
The company‘s brand loyalty is unrivaled, with over 1.8 billion active devices globally. This massive installed base provides a captive audience for steady hardware upgrades and app store sales. Switching costs are high once customers are locked into the Apple ecosystem, underpinning a wide economic moat.
Apple‘s financial performance has been stellar, with revenue rising at a 14% annualized rate over the past decade while earnings per share have grown even faster at 22% annually. Free cash flow topped $100 billion over the past year, enabling enormous capital returns. Apple has raised its dividend annually since initiating one in 2012, although the current yield remains subdued near 0.5%.
Looking ahead, Apple‘s growth may moderate as smartphone penetration matures. But more rapid expansion of the high-margin services business is a key offset. Apple‘s pristine balance sheet ($169 billion net cash) and modest payout ratio (15%) provide ample flexibility to navigate any challenges and boost capital returns. With a reasonable valuation and continued growth potential, Apple is a top tech pick for dividend growth.
3. Broadcom (AVGO)
Broadcom is a leading designer and manufacturer of semiconductor and infrastructure software products. Its chips are used in smartphones, networking equipment, broadband access, and factory automation systems. The company has used acquisitions (CA Technologies and Symantec) to build a large infrastructure software business with over $7 billion in annual sales.
Broadcom‘s well-diversified business mix is a key selling point for dividend investors. Stable demand from data centers and networking customers offsets more cyclical wireless sales. Chip content gains in 5G phones and rising adoption of factory automation also provide attractive growth opportunities.
The company‘s financial track record is exceptional, with revenue and EPS both growing at 15%+ annualized rates over the past five years. Broadcom‘s focus on R&D and strategic M&A has kept it at the leading edge of semiconductor innovation. The company now targets returning 50% of annual free cash flow to shareholders via dividends, supporting robust payout growth.
Indeed, Broadcom has raised its dividend annually since initiating one in 2010 (by nearly 50% per year on average). The stock now yields an attractive 2.25%, and the dividend appears highly secure based on ample free cash flow coverage. With powerful secular growth drivers and a shareholder-friendly capital allocation policy, Broadcom is a compelling pick for income and growth.
4. Texas Instruments (TXN)
Texas Instruments is the world‘s largest manufacturer of analog semiconductors, which help translate real-world signals like sound and temperature into digital data. The company‘s chips are used in a wide range of electronics across the industrial, automotive, personal electronics, communications and enterprise systems markets.
Texas Instruments‘ focus on analog and embedded chips provides some unique advantages. Unlike digital chips, analog semiconductors have long product lifecycles (5-7 years vs. 1-2 for digital), enabling TI to generate stable revenue and strong cash flow. This dynamic has powered 18 consecutive years of free cash flow margin improvement.
The company‘s strong competitive position is rooted in manufacturing scale, a broad product portfolio, and customer diversity. TI has over 100,000 products used by more than 100,000 customers globally. Relationships with customers are sticky and switching costs are high once TI‘s chips are designed into an end product.
TI has paid uninterrupted dividends since 1962 and raised its payout for 19 straight years (by 26% annually over the past decade). The company aims to return all free cash flow to shareholders through dividends and buybacks over time. A strong balance sheet ($9 billion net cash) and industry-leading profitability support a highly secure, well-covered dividend.
5. Cisco Systems (CSCO)
Cisco is the world‘s leading provider of networking equipment and services that form the backbone of the internet. The company‘s routers, switches, wireless access points, and network management software are ubiquitous across enterprises globally. Cisco‘s massive installed base and "mission-critical" hardware underpin a wide and durable moat.
While Cisco‘s revenue growth has been tepid over the past decade, the company has adeptly shifted its business mix toward more software and recurring revenue. Subscriptions now account for over 40% of total sales (up from 10% in 2015), with a target of 50% by 2025. This transition supports higher margins, more consistent cash flow, and improved visibility.
Cisco has raised its dividend annually since initiating one in 2011 and at a 19% annualized growth rate over the past five years. The stock‘s nearly 3% yield is attractive for the tech sector, and the payout appears highly secure with coverage from free cash flow near 2x. Cisco is also a prolific share repurchaser, having retired over 30% of diluted shares over the past decade.
Relentless growth in data consumption and internet traffic, paired with emerging opportunities like 5G and WiFi 6, provide steady growth tailwinds for Cisco. With a resilient business model, robust cash generation, and a long runway for dividend growth, Cisco is an attractive holding for income-focused portfolios.
How to Analyze a Tech Company‘s Dividend
When evaluating a tech stock for dividend sustainability and growth, several key factors should be considered:
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Payout ratio: This metric expresses the dividend as a percentage of earnings or free cash flow. A lower payout ratio (generally below 60%) suggests ample room for continued dividend growth. Tech companies with ratios above 70% may have more limited flexibility to expand payouts.
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Balance sheet health: Tech companies with large net cash positions have greater ability to pay and grow dividends than those with stretched balance sheets. Be particularly wary of tech names with elevated leverage ratios (Debt / EBITDA over 3x) and large debt maturities over the near-term.
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Free cash flow generation: Since dividends are paid from cash, not accounting earnings, focus on a company‘s free cash flow when gauging payout sustainability. Tech companies with diverse revenue streams, high margins, and asset-light business models tend to produce the most robust free cash flow.
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Competitive positioning: Tech is an intensely competitive sector. Favor dividend payers with wide economic moats that can fend off rivals and sustain high returns on capital over time. Attributes to look for include a large installed base, high customer switching costs, network effects, and hard-to-replicate intellectual property.
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Dividend growth track record: While past performance doesn‘t guarantee future results, lengthy histories of consistent dividend growth can provide insight into a management team‘s commitment to the payout. Favor tech stocks with multi-year or multi-decade dividend growth track records.
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Management‘s capital allocation priorities: Seek out companies that have explicitly stated their intention to return cash to shareholders via dividends over time. Firms with large mergers and acquisitions or aggressive buyback activity may be more likely to sacrifice the dividend during challenging periods.
By focusing on these key factors, investors can build a portfolio of tech stocks that can provide reliable, growing income streams for years to come. Of course, even the most attractive tech dividend stocks aren‘t immune to volatility. But a long-term perspective and diversified approach can help mitigate company-specific risks over time.
The Bottom Line
Tech stocks are increasingly becoming a compelling source of dividend income. As the sector has matured, more companies are generating the diverse, stable cash flows needed to support durable payouts. The 10 stocks profiled above all offer attractive yields, strong competitive positions, and long runways for dividend growth.
Of course, investors shouldn‘t simply chase the highest tech yields without regard for quality and safety. Favor companies with reasonable payout ratios (preferably below 60%), sturdy balance sheets, growing free cash flow, and enduring competitive advantages.
No dividend is guaranteed, so diversification across the tech ecosystem is also key. Consider building a portfolio with exposure to various industry verticals like software, semiconductors, hardware, and IT services. And be sure to monitor company- and industry-specific risks over time.
Dividend-paying tech stocks aren‘t likely to outperform during rip-roaring bull markets as they did during the pandemic. And they‘ve been especially hard hit during this year‘s bear market, pressuring near-term total return prospects. But for patient investors with multi-year time horizons, this volatility can provide attractive entry points for long-term dividend growth.
With powerful secular tailwinds like cloud computing, artificial intelligence, robotics, and 5G still in early innings, dividend-paying tech companies have long growth runways ahead. Income investors would be wise to maintain some exposure to this dynamic sector, as tech dividends are poised to grow faster than more mature corners of the equity market over time. Just be sure to stay diversified and focused on quality.
