Technology Dividends From Industry Giants
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The technology industry has been changing over the last decade or so, with once high-growth names realizing that their growth days are over. Often the big indication of this is when a once growth-focused tech company starts to pay a dividend. Some industry giants have paid dividends for years, but others have only recently come to accept that it's time to look at life in a different way.
The Dow-30 contains five industry giants that pay dividends: International Business Machines (NYSE: IBM), Microsoft (NASDAQ: MSFT), Intel (NASDAQ: INTC), Hewlett-Packard (NYSE: HPQ), and most recently Cisco (NASDAQ: CSCO). These five are a good place to start for dividend focused investors looking to tap into the technology space.
IBM is one of the world's best known brands. It has innovated and transformed itself numerous times throughout its long history, with its most recent reincarnation positioning it very well in the technology services space. It still has a research and development team that is top notch and it still makes select hardware items, but its big push is providing services. Its vast size and scope allows it to take on projects that are massive in scale all the way down to relatively small deals. One notable aspect of these projects is their annuity-like nature. Indeed, long-term contracts are the norm in this space and provide a great deal of clarity into IBM's future revenues. Big Blue is an obvious industry leader, however, and its shares are priced accordingly. So the stock is probably best suited to investors looking for financially strong, core holdings rather than a large income stream.
The HP Way
Hewlett-Packard is also among the world's largest technology companies, tracing its roots back to a partnership between technology legends William Hewlett and David Packard. However, HP isn't IBM. While HP has also gone through many changes in its life, it hasn't executed particularly well of late. Indeed, despite a move toward services, most still consider HP a personal computer and printer company. Although Hewlett Packard's shift to a services model hasn't been a clean as IBM's, the change makes sense.
I recently created a SWOT analysis of the company and came to conclusion that HP is a financially strong company that has the ability to see this change through to completion, even if it takes longer, and is a bit messier, than hoped. With a near 4% yield, this value priced tech giant is worth a closer look for more aggressive investors.
Windows Is Still Big Business
Microsoft is another giant of the technology industry. Most people know it for three things: Windows, Office, and Xbox. These are big businesses that appear to have years of prominence left despite technology changes that have given competitors Apple (AAPL) and Google (GOOG) solid positions in new markets like the Internet and mobile computing. In fact, the three franchises that Microsoft has are so big, that the company can afford to step into other areas and, frankly, fail miserably (anyone remember the Zune music player?).
In fact, the Xbox wasn't an instant success and required years of investment before Microsoft saw a dime of earnings. The company's most recent foray is in operating systems for smart phones, an area that is dominated by Apple and Google. Microsoft has formed an alliance with cell phone maker Nokia (NOK) that has produced some highly regarded phones. Now it remains to be seen if the phones are highly desired by customers. If not, Microsoft will probably just keep trying (Nokia, however, will likely have a big problem on its hands). You can read more about my take on the Nokia/Microsoft partnership in a recent SWOT analysis I created for Nokia. That said, with a 3.5% yield, Microsoft is an interesting choice for investors seeking technology exposure and income from a still dominant industry player.
The Other Half Of Wintel
Intel is another tech giant that has been having a difficult time keeping pace with the industry's shift to mobile devices. Generally considered Microsoft's erstwhile partner in forming the core of most personal computers sold in the world, Intel doesn't get much respect in the cell phone space. With good reason, though, since rival chip makers appear to have better industry positions. This has led to a material slide in Intel's shares, and left it yielding well over 4% of late.
This could be a solid entry point for income investors with a value bias, since the company has plenty of cash and clout to take on its current challenges. Indeed, it could use its own research and development might to further penetrate the cell phone space or simply acquire its way in to more market share. Note, too, that the whole mobile computing/cloud computing idea requires vast server farms that often run on Intel chips. So while it may appear that Intel is at a disadvantage in this emerging space, it has a few tricks up its sleeve that should keep the lights on and dividend flowing for years to come.
A Stumbling Giant
Last but not least, Cisco is the fifth technology giant in the Dow 30. Cisco has had a rough go of it over the past few years, trying to spur growth by getting into far too many different industry segments only to have to embarrassingly retreat from most of them. John Chambers, the company iconic CEO, went so far as to write a widely disseminated letter that looked to many like a big apology for taking the company down the wrong path.
While that letter outlined a number of solid steps that he planned to take to right the ship, it hasn't been a smooth ride and the company's shares have lingered in the high teens for quite some time. That's well below the high $70s reached in the late early 2000s before the tech bust. Still, the company has a dominant position in the networking space. Moreover, with the cloud and wireless connectivity of increasing importance, Cisco appears to have a decent chance of turning things around. In fact, recent results have been more promising. Moreover, like all of the others on this list, it has plenty of money to keep up the fight and pay shareholders to wait for what could be better days ahead. A yield a little above 3% could make this stock enticing to investors focused on dividend growth.
Although the big boys are a good starting place for a core portfolio, there are some lesser known and small cap technology names with large dividend yields that might interest dividend investors, too. I've covered a few to look at in a sister article.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines, Intel, and Microsoft. Motley Fool newsletter services recommend International Business Machines, 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!