) -- Looking back historically, dividends and tech stocks haven't exactly gone hand in hand. In fact, the
hit its all-time low dividend yield --1.11% -- during the height of the dot-com bubble, as zero-yielding tech names made up a record chunk of the big index and ballooned in price.
But in recent years, something strange has happened: The world's biggest tech names have matured. And like mature businesses tend to do, they're paying out dividends in record numbers.
Right now, the companies that make up the S&P 500 index are sitting on record cash -- and they're led by the technology sector. Ironically, in many respects, the high-risk tech stocks of yesterday are actually the best names for today's risk averse income investors. After all, tech stocks are more likely to have coffers stuffed with cash, little to no balance sheet leverage, and little reliance on the health of the consumer credit market.
That's right -- if you're antsy about the state of the economy right now, high-yield tech stocks are the place to be. So today, we're taking a look at
that look primed to hike their dividends in the next quarter.
Over the last three and a half decades, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, based on data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.
But instead of chasing payouts, we'll try to step in front of the next round of hikes.
For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, a low payout ratio, and a history of dividend hikes. While those items don't guarantee dividend announcements in the next month or three, they do dramatically increase the odds that management will hike their cash payouts, especially as investors start to get antsy about whether or not 2013's rally will be able to hang on.
Without further ado, here's a look at
in the next quarter.
As the standard bearer in the processor business,
) boasts a pretty wide moat. Al told, it owns around 80% of the microprocessor market. That scale, coupled with a computer chip market that's been out of favor with investors means that Intel's dividend yield is massive. At current prices, the firm pays out just over 4% of its market cap in cash to shareholders. And that number could be due for a hike in the next quarter.
Intel's share of the PC chip market makes it a force to be reckoned with. Because the firm generates substantial cash, it's able to shove more money into R&D than any of its peers, and ensure that its products are the fastest, the most efficient, and the lowest cost. But that doesn't mean that Intel is unchallenged right now -- the mobile device market could pose a problem for Intel in the years ahead. That's because Intel doesn't own the dominant share of the chips that power mobile devices, and as consumers increasingly substitute their iPads for PCs, demand for chips remains soft. To combat that, Intel has been hard at work to market its Atom processor line, which has become increasingly competitive at using less power.
From a financial standpoint, Intel is in solid shape. The firm carries a $13 billion net cash and investment position, and that should continue to widen as Intel carves a bigger chunk out of the mobile market and sees the down cycle in PCs wear off. Currently, Intel pays a 22.5-cent quarterly dividend, but the firm has the wherewithal to hike that payout.
2013 has been a strong year for hard drive maker
). Since the start of of the year, shares of the firm have rallied 30%, leaving the rest of the tech sector in the dust from a performance standpoint.
That's not a huge surprise. After all, the computer storage business has been hot in recent years, fuelled by big consumer trends like cloud computing and online movie and game distribution that greatly increase storage demand. Seagate is well-positioned to keep benefitting from that increased need for drives.
Like Intel, Seagate is standard bearer in its business. STX is the biggest manufacturer of enterprise hard drives, the storage medium that powers the world's servers and IT departments. Because most of Seagate's sales come from original equipment manufacturers rather than end-users, the firm should continue to benefit as storage needs grow, even if the PC manufacturers themselves struggle to find margins.
Solid-state drives do pose some threat to Seagate's business, especially in the high-end corners of the consumer and enterprise world. SSDs are much smaller and faster than conventional hard drives, but they offset those benefits with a far greater cost. Stop-gaps like hybrid drives should help knock fence-sitters over into Seagate's site of the business while the firm builds up its expertise in solid state media.
Right now, Seagate pays out a 38-cent dividend for a 3.85% yield. But not for long. Expect a hike to STX's payout in the near-term.
) is another tech name that caters to enterprise customers. The firm provides management software and integration services for IT departments, with a specialization in mainframes. The firm's quarterly dividend payout weighs in at 25 cents per share, adding up to a 3.36% yield.
Today, around 60% of CA's sales come from mainframes. That mainframe expertise should continue to serve the firm well, even if the giant machines are less commonplace at most large companies. While mainframes don't have the growth potential that the other side of CA's business enjoys, the clients that have made a huge commitment to mainframe integration aren't likely to change it. CA has also done a good job of positioning itself in line with tech's hottest areas like cloud computing and virtualization. As those technologies continue to grow in popularity in the business world, CA should continue to push its sales numbers higher, particularly with a customer list that already includes 99% of the Fortune 1000.
On the balance sheet side of things, CA is flush with cash. The firm carries more than a billion dollars in net cash, a position that covers nearly ten percent of CA's market capitalization. That liquidity puts the firm in good shape for a dividend hike.
You've probably used a product from
) without even realizing it. The $7.6 billion firm makes products that are used in everything from remote controls to electric motors -- essentially any product that uses electronics falls within MCHP's target market.
The microcontroller business is crowded, so to compete, MCHP went simple. The firm started targeting an even lower side of the market, eschewing the more complex side of the business where rivals are clustering, and opting instead to sell massive quantities of microcontrollers that perform mundane tasks. The chips are cheap to make and that drives double-digit net profit margins for Microchip.
It's also driven a $1 billion net cash position on the firm's books that effectively erases 15% of the risk from MCHP's shares, and puts the firm in a better position for a dividend hike. I'll admit that MCHP is a bit of a "gimme" when it comes to hiking payouts -- the firm's policy has it boosting its dividend by a small amount each quarter. Still, tacking small increases onto a 35.4-cent quarterly payout shouldn't be ignored. Currently, MCHP's dividend adds up to a generous 3.65% yield.
) has posted some strong performance this year for a chipmaker -- the firm's 21% gains year-to-date have outpaced the S&P by a respectable margin. Nvidia is a graphics chip designer whose products are found in devices ranging from PCs and mobile phones to gaming consoles. Right now, the firm pays out a 7.5-cent dividend for a 2% yield. While that's not exactly "high yield" in the historical sense, the low bar set by the
makes it look at whole lot more impressive.
In recent years, processor makers like Intel have been working to add graphics processing abilities to their own chips. While that's harmed demand for dedicated graphics cards in laptops and lower end desktops, it's trickling up the food chain as capabilities improve. The trend towards higher-end graphics (such as 4K displays) in pro-level machines should help to limit that encroachment, as should Nvidia's increasing exposure to graphics hardware for supercomputers and consumer electronics such as the PlayStation 3.
Nvidia outsources all of its production, and that's a good thing. By keeping the capital-intense fixed costs of manufacturing off of NVDA's plate, the firm is able to keep its head above water when times get tough in exchange for slightly smaller margins. That's a tradeoff worth taking. With close to $3 billion in the bank and effectively no debt, NVDA sports a bargain valuation right now, and plenty of free cash to hike its dividend in the next quarter.
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-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned. Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in
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Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji