Tech Dividends Flying Under the Radar

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Investing in technology stocks isn’t usually aligned with dividend investing.  Investors who crave dividends from their stocks generally look to traditional income-producing sectors like utilities and consumer staples.  The truth is that market-surpassing dividend yields can be found within the technology sector.  For an investor willing to dig a little deeper into the universe of dividend-paying technology stocks, some hidden gems can be found that may be worthy of further research.

Computer Science Corp. (NYSE: CSC) provides information technology services to businesses and governments.  The company is geographically diversified, with operations in North America, Europe, Asia, and Australia.  During the first six months of 2012, Computer Science’s revenues declined by more than 2%, but net income per share came in at $1.09 versus a loss of $17.39 per share the year prior. 

In addition to renewed profitability, a bright spot for the company is its healthy balance sheet.  Computer Sciences has more than $1.8 billion in cash, amounting to almost 28% of its market value.  The stock has a dividend yield of about 2%, and had a great year in 2012, rising more than 70%.

Microchip Technology (NASDAQ: MCHP) is a $6.5 billion semiconductor company.  Microchip has a solid dividend track record, increasing its shareholder payout every year since 2002.  Recently, the company has raised its dividend every quarter, and the stock now yields more than 4.2% at current prices.  As of its most recent quarterly payout, the dividend has a five-year compound annual growth rate of 2.5%. 

During the six months ended Sept. 28, net sales increased slightly less than 3% year over year.  However, diluted earnings per share dropped 68%, primarily as a result of higher cost of sales and significantly higher operating expenses.  Investors did not treat the company’s results favorably, sending shares 10% lower in 2012.  Prospective investors would be wise to monitor Microchip’s results going forward to ensure that the company has its expenses under control.

Molex (NASDAQ: MOLX) carries a market capitalization of $5 billion and a dividend yield north of 3%.  Molex designs and manufactures electronic components.  Molex reported disappointing first-quarter results in October, with revenues and diluted earnings per share falling 2% and 13%, respectively. 

On a positive note, the company’s balance sheet is sound:  Molex has a current ratio of 2.3 times, and also has a long term debt-to-equity ratio of only 6%.  Molex has aggressively grown its dividend at a 14% compound annual rate over the last five years.  Shares of Molex performed well in 2012, increasing more than 16%.

Each of these three stocks offers investors dividend yields that meet or beat the yield on the broader market.  Investors who desire an entry into the technology sector may want to give these names a closer look.  These stocks may be under the shadow of the traditional technology giants in the United States, but with modest market capitalizations, have more room to run than their juggernaut peers.

Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!

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