Tech’s Now Dividend Land: We Identify the Stars
This is part of a YCharts series analyzing dividend-payers across all 10 sectors of the S&P 500. The first in our series showed readers how to find dividend stars and focused on healthcare stocks. Subsequent articles focused on dividend stars among consumer defensive stocks, utility stocks, financial stocks, industrial stocks, consumer cyclical stocks, energy stocks, telecom stocks and basic materials stock stocks.
With the likes of tech big boys Apple (AAPL) and Intel (INTC) slumping badly of late it’s no surprise the Technology stocks in the S&P 500 limped to a 4.2% gain in the first quarter compared to the 10% rise for the entire index.
That said, when it comes to income and dividend growth selling at cheap valuations, this sector can’t be beat. In a recent research note titled “A Continuing Case for Dividends” Richard Skaggs, senior equity strategist at Loomis Sayles called out the tech sector “the emerging star of dividend growth.” It’s also the single biggest dividend payer in the S&P 500 in dollar terms. Skaggs expects that to continue. “….these [tech dividend payers] companies appear to be rethinking capital management policies and favoring dividends as an increasingly important element in the total return equation.”
That was certainly reflected in Apple’s decision to hike its dividend and initiate the biggest stock buyback program ever.
Using YCharts Stock Screener we drilled down within the S&P 500’s tech sector, requiring a current dividend yield of at least 2%, a five year annualized dividend growth rate of at least 12% (the median for the sector) and a forward PE ratio below the 12.5 average for the group.
Neither Apple (which only started paying a dividend last year) or Intel (a dividend growth rate of 11%) made the cut. In fact, given the high hurdles, just three stocks survived the screen: CA Technologies (CA), Corning (GLW) and Harris Corporation (HRS).
CA Technologies ‘ 4.1% dividend yield looks enticing, but income investors smartly looking for consistent dividend growth beware, as the company has yet to deliver on the consistent part of the equation.
Harris Corp., is one of the smaller components of the S&P 500 with a $5.2 billion market cap; Apple’s $407 billion market cap leads the index. Yet the communications tech and IT provider sells to commercial and government clients in more than 125 countries. It’s radios are used by the U.S. Department of Defense and NATO; and it supplies the communications infrastructure for the FAA. Given its government-contracting component, the stock has traded down 8% in 2013 amid deficit reduction negotiations and the recent sequestration cuts, as seen in a stock chart. But more recently the stock has managed to outpace the broad market as investor concerns over defense spending cuts seem to be abating.
Harris Corporation’s current 3.3% dividend yield is well above the 2% average for the S&P 500 index. The company has also clearly established its commitment to dividend growth.
As the leading producer of glass for LCD screens -- from flat screen TVs to mobile devices -- Corning has a strong demand tailwind. During the post-recession stretch during which many companies have been hard-pressed to deliver solid revenue growth, Corning has had no such problem.
On the dividend front, Corning has a checkered past. It stopped paying a dividend in 2001 during the tech sector meltdown. Corning started paying a dividend again in 2007. That’s a short time frame, and completely obliterating a dividend is a harsh legacy to live down. But as the chart below shows, Corning sure seems to have considerable cushion to keep the dividend rising.
Corning also has been busy reducing its outstanding shares. The stock’s dividend yield is 2.7%. Corning’s net payout yield-dividend plus buybacks-is an even stronger 5.83%.
Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at email@example.com.