NEW YORK ( TheStreet) -- Although a technology dividend ETF would have probably been a joke 10 years ago, First Trust recognizes its potential today. First Trust strategists Ryan Issakainen and TheStreet's Gregg Greenberg are here with the breakdown.
Over the last five or six years, investors have seen many more technology companies initiate dividend payouts. Due to their strong balance sheets, this is certainly a plausible strategy for maturing companies that still have strong cash flows.
In fact, technology stocks are actually the largest dividend contributor to the S&P 500's dividend payouts.
That's why First Trust decided that it made sense to have a technology dividend ETF. But does that mean that the companies in it are all but done growing?Not necessarily, according to Issakainen. He said that while companies such as Microsoft (MSFT), Intel (INTC) and IBM (IBM) all have strong payouts, they also have strong free cash flows. Add in low debt, experience and a lot of cash, and it strengthens Issakainen's argument that these companies will continue to increase their dividends. Although dividends make sense for mature tech titans, what about the young companies? He says that new technology companies are likely better off reinvesting in themselves. He added that companies such as Facebook (FB) would do shareholders a disservice by paying out a dividend, rather than finding new potential growth outlets to exploit. -- Written by Bret Kenwell in Petoskey, Mich. . Follow @BretKenwell