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TheStreet Open House

Don't Scoff at Tech Dividends

Another factor is that many tech companies have done so well that they can have their cake and eat it -- retain as much cash as they need for growth, R&D, marketing, product development, etc., while also respecting their shareholders. Yes, they are more mature, because they have proven to be wildly successful. And yes, their P/E multiples reflect that maturity, so that paying a dividend will no longer be seen as a deflating, disillusioning step.

Then there is the recent market environment to consider. In the past two years, the "risk off" trade has dominated market psychology more often than not. In such an environment, shareholders have flocked to the most defensive sectors, industries and holdings. High-dividend stocks have vastly outpaced low- and no-dividend-paying stocks. The differential in returns has been so pronounced that more and more CEOs and boards are getting the message.

Although tech companies did not fit this defensive profile, those that paid higher dividends did tend to have more stability than their non-dividend-paying peers that had comparable business profiles.

As dividends have again become recognized as an important aspect of stock's total return, technology boards that have taken note of this have helped improve their companies' returns for investors.

Drug companies provide an example of this dynamic, and we expect it to provide a road map for technology companies. A few years back, when growth prospects for some mega-cap drug companies declined, company boards made their dividends a priority and an important aspect of their total return to shareholders. Although the initial reaction was negative, the dividend payments have evolved into a big plus. In fact, this high yield was a major reason this group fared very well in the past 18 months.

All things being equal, we like dividends a lot (especially in this exceptionally low-interest-rate environment). But when we look at companies to invest in, it is merely one of the many considerations. However, in those cases where we like a business and are able to buy the stock at a favorable price, we look at healthy and growing dividends as the icing on the cake.

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