Investors tend to look at technology stocks as pure “growth”, as in the only way to earn a return on them is through capital appreciation via a rise in the share price.
However, over the long term we should recall that dividends can make up a large portion of the total returns of stocks.
Last week, I wrote about the big news of a dividend hike (and share buyback) at tech giant Microsoft Corporation (NASDAQ: MSFT).
But many investors may not realise that there are other technology-oriented stocks out there that pay generous dividends.
Not only that but the dividends in certain tech spaces have been fast-growing over time (which we should all welcome) as it helps to highlight that management teams feel confident enough in the sustainability to pay out to shareholders.
With that, here are two technology stocks that have been paying out fast-growing dividends to investors.
1. Texas Instruments
While we might associate Texas Instruments Incorporated (NASDAQ: TXN) with its eponymous BA II graphic calculator, the company actually generates the majority of its revenue from semiconductors.
Its production model is that of an integrated device manufacturer (IDM) that designs, manufactures and also sells its chips.
Although that might seem like a poor model given the demise of Intel Inc (NASDAQ: INTC), Texas Instruments manages to so profitably because these chips are based on older designs.
That’s because even though the likes of Nvidia Corporation (NASDAQ: NVDA) and Advanced Micro Devices Inc (NASDAQ: AMD) design leading-edge chips, millions of analog semiconductors are still used in areas such as consumer electronics, industrial machines and cars.
These are the clientele that Texas Instruments serves. In its latest quarter, the company posted an impressive 41% year-on-year increase in revenue to US$4.58 billion.
Net income saw a similar 40% year-on-year bump to US$1.93 billion. Since its business is also not capital intensive, Texas Instruments continued to generate massive operating cash flow – amounting to US$7.5 billion over the trailing 12 months.
While it guided for flat sequential revenue growth on demand uncertainty, the company did feel confident enough to raise its quarterly dividend per share (DPS) recently by 13% to US$1.15.
From 2004 to 2020, Texas Instruments grew its dividend at a compound annual growth rate (CAGR) of a whopping 26%.
While it only yields around 2.2%, Texas Instruments shares look likely to continue rewarding shareholders over the longer term.
2. Broadcom
The second stock is also a semiconductor stock and that’s Broadcom Inc (NASDAQ: AVGO), which was previously known as “Avago” – a Singapore-based chipmaker.
Under Malaysian-born CEO Hock Tan, Broadcom has morphed into its current form via a slew of acquisitions. This culminated when Avago acquired Broadcom for US$37 billion in 2016 and moved its headquarters to the US.
The combined entity now operates as a fabless semiconductor firm, meaning it designs and develops its chips but outsources the manufacturing of them.
Primarily serving the wireless and broadband communications industry, Broadcom has also recently expanded into the infrastructure software market by purchasing NortonLifeLock Inc’s (NASDAQ: NLOK) security business in 2019.
For its latest fiscal third-quarter fiscal year (FY) 2021, Broadcom reported revenue of US$6.77 billion – up 16% year-on-year.
It also announced a quarterly DPS of US$3.60 earlier this (fiscal) year, which was up 11% from the prior quarter.
Over the past six years, Broadcom has grown its dividend at an impressive CAGR of 43.1%. Its shares are up 19% so far in 2021 and recently hit an all-time high. Broadcom shares have a dividend yield of 2.9%.
Tech can pay dividends too
It tends to be a misconception that only “traditional” sectors like banks and utilities pay dividends to investors.
As Texas Instruments and Broadcom illustrate, technology companies can also reward shareholders with rising dividends over time.
For investors looking to grow their portfolio over time, then dividend stocks will continue to play a crucial role.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Texas Instruments Incorporated.
