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Old Tech Dividends

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

The old guard of technology companies has come a long way since they were considered growth companies. Once afforded P/E multiples that would make your nose bleed, many are now considered slow growth, stagnant, or, worse, dying industry behemoths. That view, however, isn't necessarily the case, and now that many old giants are (gasp!) paying dividends, income investors have a few tech options to consider for income and long-term growth.

Not without a fight!
The transition of the technology growth companies of the 1980s and 1990s into slow moving industry leaders wasn't quick. It didn't happen overnight and, in many cases, it hasn't happen without a fight. Indeed, some management teams have been reluctant to accept that they are now running different companies than they were twenty years ago.

Dow-30 member Cisco's very public failed attempt a few years back to diversify into, well, just about anything, is a prime example. CEO John Chambers pushed the envelope too far, buying video recording devices and more to find something, anything, to push earnings growth back to its historic levels and live up to its old image. An embarrassing memo to employees, passed on to the public, ended the affair with an apology and a pledge to get back to basics.

Not everyone lost their heads
However, not every tech company got caught up in the past. Some simply kept doing what they had always done and, in the end, wound up dominating their niche. This is the case with Seagate Technology (NASDAQ: STX) and Western Digital (NASDAQ: WDC). Both are leaders in the storage space, with material positions in hard drives.

Hard drives? That's a dying business! But is it?

Clearly the fate of the personal computer will have a notable impact on hard drive sales. However, a switch to web based services and storage still requires, well, storage of some sort. Since hard drives remain the cheapest alternative, server farms will likely continue to make use of this “old” technology. Moreover, both companies have their fingers into newer storage technologies, a fact that the market seems to be largely overlooking.

Seagate yields nearly 5%, as management has focused on returning value to shareholders via dividends and stock buy backs, while Western Digital's focus on shoring up its finances has left the dividend yield at a less impressive 2.3%, or so. A duopoly for the most part, these two old tech giants likely have years of dividend payments ahead of them. And, if they can change with the times, their shares may even have some growth ahead, too.

Speaking of duos
Another pair of old tech companies that quickly come to mind is the Wintel combo of Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC). Both of these companies are suffering under the same “the PC is dead” mentality that has affected the storage players above. However, the size and scale of Wintel is well beyond Seagate and Western digital, giving Microsoft and Intel enviable staying power, even in harsh times.

However, those harsh times have yet to truly appear. Intel has been facing some severe criticism of late about its reliance on PCs and servers, even though the server market is likely to continue to grow as people shift toward web-based services. The big chink in the armor, though, is the company's limited presence in the mobile world. While true, the current price seems to discount the possibility of Intel breaking into that market, either through its own efforts or via acquisition. A yield of over 4% could be an interesting entry point for investors who think this well-heeled old timer still has some tricks up its sleeve.

Microsoft, meanwhile, has aged more gracefully than any of the above companies. 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 and Google solid positions in new markets like the Internet and mobile computing.

These three franchises are so big that the company can afford to experiment in other areas without notable repercussions if it fails. The ill-fated Zune music player is, perhaps, the best example. Some initial failures, however, turn into huge successes. Here, years of dedication led to the Xbox becoming one of three main gaming platforms.

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 (NYSE: NOK) that has produced some highly regarded phones. While it is uncertain if this effort will be successful, the company's 3% plus dividend yield is likely ample compensation even if it doesn't.

Both Intel and Microsoft have made a habit of increasing their dividend distributions of late, which makes the story even more compelling. Even if the PC is a dying product, these two companies can use the cash from that cow to move into other areas.

I'm not dead yet!
The old line “I'm not dead yet” from Monty Python is a wonderful analogy. First heard in a movie decades ago, it is now a song in Spamalot, a Broadway musical that has garnered nearly as much fanfare as Monty Python's old movies. If that line can be, pardon the pun, resurrected, these tech giants might just find a way to survive, too.


ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Intel Corp. The Motley Fool owns shares of Intel Corp, Microsoft, and Western Digital Corp.. 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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