Big Tech, Big Cash, and Big Dividends
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many older "Big Tech" companies are seen as boring investments. Many investors may still be harnessing feelings of resentment from the bursting of the dot com bubble. Some say that these companies are "dead money." The big technology sector, however, is filled with cash-hoarding companies that are wisening up to the fact that many shareholders love dividend payments. Here are a few companies that seem to be increasing dividends payouts from large cash reserves. If you enjoy receiving dividends conjured up from relatively safe payout ratios, consider these companies.
Intel (NASDAQ: INTC):
As can be seen, the beaten-down chip maker Intel is the leader of the trio in yield, paying out a 4.6% dividend yield per share. This is a solid yield from a company that has a wide-moat in the PC business. There are also concerns that the company may be drowning in its own PC moat, as competitors such as Qualcomm continue to dominate the mobile chip market amongst declining PC sales. The company also has controversy surrounding it due to the recent departure of its CEO. Still, the company has $2.26 billion in free cash flow to work with (according to ycharts), which is not only good news for the sustainability of its dividend, but also for its ability to invest in research and development to remain a major player in the tech sector. Intel's problems are most likely short-term, especially if the economy picks up and PC demand from enterprises picks up. Intel also realizes the need to get into mobile, and is not only working on its mobile chips, but expediting the process, according to Forbes. Intel will also be getting into mobile in Microsoft's upcoming Surface Pro Tablet, which will be more powerful than the currently available Surface RT.
Microsoft (NASDAQ: MSFT):
Microsoft recently raised their dividend 15 percent, and now pays out a nice 3.4% yield. Microsoft recently saw a dip in its price due to the departure of Steve Sinofsky, who was head of Windows and thought by many to be a future CEO candidate. Still, current CEO Steve Ballmer is working hard to promote Windows 8 and the integration of all of the company's various components (Windows 8, Office, Xbox, Windows Phone, etc.) into one, succinct ecosystem. Sales numbers have yet to be released for newly released Windows 8 or the Surface RT tablet, but either way Microsoft is a dominant player in the tech space, especially with its Microsoft Office products and Xbox offerings. The company has a massive $66.64 billion in cash and short-term investments, according to Ycharts. Compare this with only $9.71 billion in long-term debt, and it can quickly be concluded that Microsoft's ability to pay out its dividend (and especially increase it) is extremely safe.
Cisco (NASDAQ: CSCO):
Cisco has only recently entered the dividend payers club, but they have also quickly raised their yield. The company's 3% yield is attractive and very sustainable. The networking juggernaut also generates massive amounts of free cash flow- $2.2 billion to be exact. With $45 billion in cash and only around $16 billion in long-term debt, the company is another cash-rich tech company that a dividend investor can rely on for yield. The company has also beaten earnings estimates for seven consecutive quarters.
The Bottom Line:
When it comes down to it, companies like Microsoft, Intel, and Cisco may seem to be boring investments. They don't attract investors like Apple or Google do. The investor searching for yield, however, could consider these companies for their solid and safe dividend yields. The companies are mature and not as exciting as some of the newer players, but they are also well established and provide somewhat predictable earnings from their core businesses. Cisco is making tons of money, but their share price hasn't shot up significantly. Intel and Microsoft have seen some recent pressures put on their share prices, and now may be a good time to establish a position and start receiving dividend payments from these cash-rich companies. Capital appreciation may not come right away, but the investor in these companies will be paid nicely for their patience.
Jharry1 owns shares of Cisco Systems, Intel, and Microsoft. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services recommend Intel and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!