I sure hope you don’t make the kind of costly mistake my uncle did.
A few years ago, the retired telco worker invested in a communication company that offered a juicy double-digit dividend.
When I heard about that, I ran some numbers on the company. And what I saw alarmed me.
Windstream Communications had a mountain of debt. My concern was that if things got tight, it would cut the dividend.
And sure enough, that’s exactly what happened. Shares slide from a high of $100 to below $2 before Windstream filed for bankruptcy protection.
I’m sharing this story with you because I’m concerned other retirees or those approaching retirement, may be tempted to shop around for high yields after the Fed recently signaled its commitment to low interest rates.
Irony abounds. Tech has become the very best place to find dividends that are the least likely to be cut no matter what happens with the economy.
Dividends in The New Tech Sector
As a boomer of “a certain age,” I can certainly understand why so many investors are on the hunt for good dividends plays.
After all, the Fed signaled just last month that it expects to keep interest rates low for several more years.
The central bank wants to get the economy revving again after the COVID shutdowns.
Here’s the thing. As a long time Silicon Valley investor, I have to say I’ve had a sea change when it comes to dividends.
A decade ago, high-yield tech stocks were rare. Back then, Silicon Valley preferred to plow cash back into the next round of growth.
But as the saying goes, that was then and this is now. Credit the digital economy for giving tech firms more money than they can invest in their own growth.
Indeed, nine tech companies in the S&P 500 alone hold more than $350 billion in net cash.
In essence, that’s transformed some of the sector’s biggest players from laggards to dividend leaders.
My question: why not put those high profit margins in our own pockets?
So, as a service to dividend hunters, I’ve updated the list I provided last March.
And I’m happy to report all three of my original picks are still going dividend strong. They have maintained their credit ratings and payouts. Take a look:
Tech Dividend Payer No. 1: Apple Inc. (AAPL)
There’s no question that the dividend investment thesis here is much better than when I last told you about the iDevice King in March.
At that time, Apple had a forward dividend yield of 1.25%. Today, following its recent 4-to1 split, the stock now has a forward yield of 2.9%.
Bear in mind, Apple sets the standard by which other consumer tech companies are judged.
Its high-margin services unit continues to ramp up sales and has become one of its biggest growth engines. Apple has said repeatedly that it is targeting $50 billion in sales here in the next few years.
AAPL has an S&P credit rating of AA+ and brings in free cash flow of more than $52 billion.
Tech Dividend Payer No. 2: Cisco Systems Inc. (CSCO)
Back in March, Wall Street was convinced that COVID would hammer Big Tech along with the rest of the economy.
That turned out to be a gross overreaction – at least regarding companies tapping the power of the Web. With millions working from home, that infrastructure saved the economy.
And that put Cisco front and center. This is a classic networking company that has been supplied products for the Web for two decades.
That’s good news for dividend seekers. In June, Cisco maintained its dividend as it has promised to do just weeks before.
CSCO shares currently have a forward dividend yield of 3.8%. CSCO has an S&P credit rating of AA- and has roughly $14 billion in net cash on hand.
It has yearly free cash flow of $11.6 billion and has been doubling its per-share earnings every six years.
Tech Dividend Payer No. 3: Microsoft Corp. (MSFT)
Yes, Microsoft was one of the first big tech leaders to say the coronavirus would hurt current sales. So, I can understand if you wondered about the safety of dividends when we spoke last March.
You needn’t have worried. On September 15, Mr. Softy said it was hiking the dividend by 10% – a pretty hefty boost in the midst of a recession.
That shows you the firm maintains a strong balance sheet and remains shareholder focused.
But that in no way invalidates the company’s huge growth.
As evidenced by its most recent quarterly earnings report, Microsoft is making sales progress sales the board.
Cloud computing was particularly strong. Its Azure suite of services saw a 47% increase in the most recent fiscal quarter compared with the year before.
Microsoft stock currently has a forward dividend yield of 1.5%. MSFT has an S&P credit rating of AAA and has $54 billion in net cash on hand and yearly free cash flow of $34 billion.
Add it all up and you can see why I like to remind folks that tech is the sector where you have both yield and growth.
Until the economy hit the skids because of the coronavirus panic, all three were great earnings growers.
Translation: when the economy gets moving at full speed again, so will these great tech leaders.
And that makes these three exciting dividend plays in today’s yield-starved market.
For even more moneymaking potential, you can even diversify further into the exclusive world of private investments.
While dividends, especially dividends on good tech companies, can be one of the steadiest ways to make investment income, getting involved with a company pre-IPO is how the largest wealth-multiplying gains are made.
We have several standout private investing opportunities in the financial world, but one of them in particular is about to close its offer. You can click here to learn more about how to invest in this deal recommendation.
Cheers and good investing,
Michael A. Robinson