Technology Dividends From Outside The Dow

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I recently wrote an article about giant technology companies that pay dividends. All five of the stocks I highlighted are in the Dow 30. However, there are plenty of additional dividend paying technology stocks out there. For example, some relatively high yielding tech names that might pop up on a dividend focused investors' list include: Lexmark International (NYSE: LXK), Microchip Technology (NASDAQ: MCHP), and CA Technologies (NASDAQ: CA).

The Company Formerly Known As Computer Associates
CA was once known as Computer Associates, a company that went through a highly publicized and fairly ugly scandal involving high ranking company employees. The switch to CA was likely a good call for this 30-plus year old company that provides IT management solutions.

CA provides expertise across mainframes and other physical products and in the nebulous worlds of virtual and cloud computing. Its goal is to “help organizations accelerate, transform and secure [customers'] IT infrastructures to deliver flexible IT services.” CA's services address every aspect of the IT processes, from the human being using the technology, to the information being worked with, to the processes, systems, networks, applications, and databases being used. It works both at its customers' locations and via Software-as-a-Service (SaaS) applications. Customers include banks, insurance companies, government agencies, telecom providers, manufacturers, retailers, educational institutions, and health care providers. It breaks its business into three groups: Mainframe Solutions, Enterprise Solutions, and Services.

In early 2012, the company upped its dividend from $0.20 per share annually to $1.00 per share annually. That's a huge jump and certainly caught the eye of many a dividend investor. Its payout ratio is high, but not unmanageable and it has a reasonable amount of debt. While definitely not IBM, CA is a large player with a solid market position that seems poised for slow-to-modest growth over the foreseeable future. With a 4.5% yield, dividend investors looking for technology exposure shouldn't be afraid to take a look here.

In Everything From Remote Controls To Refrigerators
Spun off from General Instrument in 1989, Microchip Technologies is a leading supplier of microcontrollers (MCUs). These chips perform relatively simple tasks and are found in such household items as remote controls and refrigerators. Although commodity items, to some extent, contracts for these chips are often long-term in nature because of the product changes that would be necessary to accommodate an MCU chip change. The chips tend to have long product lives and, thus, decent margins. Microchip Technologies has a solid business in the 8 bit space, but lags competitors in the more modern 16 bit and 32 bit areas. This isn't inherently a big deal today, but it is an issue for longer term growth.

The big problem facing the company now appears to be the economy. Indeed, since its products are in everyday consumer goods, it is indirectly affected by consumer spending: If end customers pull back, so, too, do Microchip Technologies' customers. The current economic soft spot has pushed the company's payout ratio into uncomfortable territory. Moreover, recent acquisitions have left the company with more debt than usual, thought debt remains at reasonable levels. While there are good reasons to be concerned about Microchip Technologies and its dividend, intrepid income investors looking for a cyclical play in the technology space might want to dig deeper into this near 5% yielding tech name. Patience will be key, however, since the economy will likely have to turn before this company's fortunes do.

Yes, It Makes Printers
Lexmark International is best known for its printers. Although it is shifting out of the consumer market, it still has a material position in the business sector and a material footprint abroad. This business segment is more profitable than the consumer market, but is also very competitive. It is the uptick in competition of late that has hampered Lexmark's results and, thus, sent its shares lower. Still, with a material installed base of printers all continuing to use Lexmark supplies, the company appears to still have a solid core business. Note that the company's results tend to be cyclical, so the current weak performance is probably not a true indication of the company's long-term potential.

With regard to the dividend, Lexmark has a reasonable amount of long-term debt and ample earnings and cash flow to cover the recently initiated dividend. Although printers are obviously not glamorous, they also aren't likely to go away any time soon (though printers are definitely going the way of the buggy whip some day). Investors willing to hitch on to an older technology that is in slow decline could benefit from this company's cash cow business and its over 5% dividend yield.

While sticking to the technology industry's biggest dividend paying names can be a relatively safe way to generate dividend income, stepping outside that box can allow you to find higher yields. Increased risk is an issue, but that risk may be fully offset by the higher income potential.


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ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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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