Technology stocks are not usually known for paying dividends. However, some of the largest tech companies have matured to the point where they generate ample free cash flow and can afford to pay consistent and growing dividends to shareholders.
For dividend investors looking for stability, mega-cap tech stocks can provide an appealing combination of dividend income and growth potential. Here are 5 mega-cap tech stocks that pay attractive dividends:
1. Apple (AAPL)
Apple is one of the world’s largest and most profitable companies. The tech giant has an entrenched ecosystem of products and services, including the iPhone, iPad, Mac, Apple Watch, and various services like the App Store.
Apple reported $394.3 billion in revenue and $99.8 billion in net income for fiscal 2022. The company has over $170 billion in cash and investments on its fortress-like balance sheet.
Apple initiated a dividend in 2012 and has raised its payout each year since. Apple’s dividend has grown by over 120% in the past 5 years. The current dividend yield is 0.7%, which is on the low side but typical for a growth-oriented tech stock.
Apple only pays out about 15% of its earnings in dividends, so there is plenty of room for future dividend growth. The brand strength, recurring revenues, and financial strength make Apple’s dividend payout extremely safe.
2. Microsoft (MSFT)
Microsoft is a diversified technology leader, best known for its Windows operating system and Office productivity software. However, Microsoft has expanded into cloud computing, business software, gaming, and more.
Microsoft has delivered 16% average annual earnings growth over the past decade. It reported $198 billion in revenue and $72.7 billion in net income for fiscal 2022. Microsoft has over $104 billion in cash plus liquid investments to support its capital return program.
Microsoft initiated a dividend in 2003. The payout has grown by over 250% in the past 10 years and now yields about 1.1%. Microsoft has a reasonable payout ratio of under 30% of earnings.
Given Microsoft’s entrenched position in enterprise software and cloud computing, its dividend is built upon a stable base of recurring revenues. Investors can likely expect around 10% annual dividend growth going forward.
3. Broadcom (AVGO)
Broadcom is a leading designer and developer of semiconductors and infrastructure software solutions. Its chips power everything from smartphones to data centers. Broadcom has delivered 25%+ average annual earnings growth over the past decade through its successful acquisition strategy.
The company reported $33.2 billion in revenue and $13.8 billion in cash flow from operations for fiscal 2022. Broadcom pays out about half its cash flow in dividends annually.
Broadcom initiated a dividend in 2010 and now yields a generous 3.1%. The company has increased its dividend each year since initiating it, growing it by over 500% during that time.
While Broadcom’s payout ratio is high, its cash flow generation continues growing to support higher dividends. Its diversified business across semiconductor and software also makes the dividend defensible across economic cycles.
4. Texas Instruments (TXN)
Texas Instruments is one of the world’s largest semiconductor companies. It manufactures and sells chips that go into everything from automobiles to industrial equipment.
A focus on manufacturing efficiencies has allowed Texas Instruments to expand margins over time. Texas Instruments reported $20.2 billion in revenue and $9.3 billion in free cash flow for 2022.
Its legendary dedication to shareholders means most free cash flow is returned through dividends and buybacks.
Texas Instruments initiated its dividend in 1962. The dividend has grown by 25% annually over the past decade and now yields a solid 3.1%. Texas Instruments has raised its dividend for 19 consecutive years, making it a Dividend Aristocrat.
The stability of the company’s cash cow chip business funds this rising dividend stream. Conservative management and focus on shareholder returns makes Texas Instruments’ dividend a reliable source of income.
5. Intel (INTC)
Intel is the world’s largest semiconductor manufacturer. It is the dominant provider of CPU chips that power PCs and servers around the world. Intel has navigated downturns before and generates plenty of cash to support its dividend.
Intel reported $79 billion in revenue and $8 billion in free cash flow last year. The company has $11 billion in cash and short-term investments.
Intel initiated its dividend in 1992. The dividend yield is now an attractive 4.1%. Intel has raised its dividend annually for the past 19 years, qualifying it as a Dividend Aristocrat. However, Intel’s dividend growth has slowed as its core CPU market has matured.
Going forward, Intel’s new foundry business and GPU chips from the acquisition of Altera provide better growth prospects. Conservative investors can lock in an above-average yield today and likely continued slow dividend growth.
Conclusion
Mega-cap tech stocks like Apple, Microsoft, Broadcom, Texas Instruments, and Intel offer rare combinations of technology leadership and shareholder income. Their immense scale and dominant positions provide the cash flow and stability to pay safe and growing dividends.
Tech stocks are not commonly associated with dividends, but these market leaders show that income and growth can successfully co-exist. For dividend investors uncomfortable with high yields, mega-cap tech stocks offer modest but relatively safe payouts backed by some of the world’s strongest companies.