Many large technology companies generate gobs of cash that can either be reinvested for growth or returned to shareholders in the form of debt reductions, share repurchases, or high dividend payments.
The four technology companies identified here dominate their markets, trade at an average high dividend yield over 3%, and have stepped up their dividend growth rates to reward income investors.
Many of these companies are attractive options for this Top 20 Dividend Stocks portfolio, which focuses on buying high quality companies trading at reasonable prices.
Importantly, each of these tech titans offers more than just an attractive dividend yield =- they all trade at a price-to-earnings multiple (P/E) that is meaningfully less than the broader market's P/E ratio.
IBM is one of Warren Buffett's highest-yielding dividend stocks.
IBM's roots can be traced back more than 100 years ago, and the company has been a force in technology for a very long period of time. Buffett has said that he has read IBM's annual reports since 1961.
Today, IBM provides a range of IT infrastructure services, consulting, software, and server and storage hardware across more than 170 countries.
The company's mainframe computers and supporting software have been a major driver of IBM's historical success. These powerful machines have been around for more than 50 years and handle massive jobs, such as managing the databases of an insurance company or credit card transactions of a bank.
Companies have been reluctant to switch to other vendors because IBM's machines and software code handle intensive, mission-critical tasks and have a track record of reliability.
As a testament to IBM's strong reputation and massive reach, approximately half of all Fortune 100 companies outsource their IT operations to IBM.
The company should continue generating healthy cash flow thanks to its status as the incumbent vendor and the high number of legacy systems it has in place.
Technology trends such as the cloud are challenging parts of IBM's business, but the company seems to have the resources and relationships to adapt over time.
Turning to the dividend, IBM has raised its dividend for more than 20 consecutive years and is a member of the Dividend Achievers Index. The company will likely join the Dividend Aristocrats list by 2021 when its dividend growth streak exceeds 25 consecutive years.
Management raised IBM's dividend by 8% earlier this year, and annual dividend growth has averaged close to 20% per year over the company's last 10 fiscal years.
Despite its high yield, IBM maintains a relatively low payout ratio near 40% and is very healthy from a financial standpoint. The company has nearly $4 in cash on hand for every $1 of dividend payments it made last year and consistently generates free cash flow.
While IBM has some work to do to begin growing its top line, continued dividend growth shouldn't be an issue.
IBM's shares currently have a dividend yield of 3.7% and trade at 11 times forward earnings estimates.
We own Intel in our Conservative Retirees dividend portfolio. The company went into business in 1968 and is the largest semiconductor chip manufacturer in the world.
Intel's primary products are microprocessors, which are the brains of computers, servers, wearable devices, and other electronics.
The company also sells chipsets, which consist of a number of electronic components designed to manage the flow of data within an electronic device.
Personal computer (PC) chips account for about half of Intel's operating profits, and the rest comes from data center processors, flash memory chips, and other chips.
Intel is essentially a monopoly in its key markets. Over 80% of global computers sold each year use the company's microprocessors, and Intel controls almost 100% of the market for servers built on PC chips.
Why has Intel been so dominant? Management consistently invests billions of dollars in advanced manufacturing processes to keep the company ahead of its competitors on the cost and performance curves.
With such a strong market share, Intel also benefits from economies of scale and can flex its pricing to keep competitors at bay. The company also has built up a stellar reputation for quality, and a number of mission-critical legacy applications run on Intel's technology, creating some switching costs.
Not surprisingly, Intel pays a very safe dividend. The company's payout ratio sits near 40%, and Intel has been a very consistent free cash flow generator.
The company has paid uninterrupted dividends since the early 1990s and raised its payout all but one year since 2004.
Management boosted the company's payout by 8% earlier this year, and Intel's dividend has compounded at a rate of 11.6% per year over its last 10 fiscal years.
The company is a blue chip dividend stock that should continue making higher payments for many years to come.
Intel's stock offers a dividend yield of 3.3% and trades at 12.9 times forward earnings estimates.
Cisco is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells CSCO? Learn more now.
Cisco started up operations over 30 years ago and has grown to become one of the most important technology companies in the world. It sells a wide array of networking hardware and services that connect computing devices to networks or computer networks with each other.
The company's bread and butter product offerings are switches and routers, which combine for close to 60% of Cisco's total product sales.
According to IDC, Cisco finished 2015 with over 60% share of the Ethernet switching market. The company's market share in routers is also greater than 50%.
Why is Cisco so successful? For one thing, the company invests heavily to maintain a leading portfolio of technologies.
Cisco has invested an average of $6 billion per year in research and development over the last three years.
Thanks to its size and lengthy operating history, Cisco has accumulated arguably the largest suite of networking products and services in the market.
As a result, the company can offer enterprise customers integrated solutions that provide a lower total cost of ownership and remove headaches associated with working with multiple vendors.
With so much technology embedded in customers' mission-critical networking systems, Cisco is an extremely trusted brand that is positioned to continue winning repeat business.
Cisco began paying dividends in 2011 and has more than quadrupled its quarterly payment since then, increasing its dividend from 6 cents per share to 26 cents.
The company's most recent dividend increase came earlier this year when management raised the dividend by 24%.
After reviewing the most important financial ratios for dividend investing, I expect double-digit dividend growth to continue thanks to Cisco's modest 24% dividend payout ratio and hefty excess cash balance of nearly $40 billion.
Cisco currently offers investors a high dividend yield of 3.6% and trades at 12.2 times forward earnings estimates.
Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells AAPL? Learn more now.
Apple needs no introduction as the company has arguably been the most influential business over the last decade.
The company's biggest growth driver has been iPhones, which accounted for approximately 66% of Apple's total revenue last fiscal year. Macs and iPads accounted for another 11% and 10%, respectively, of the company's sales.
The remaining 13% of Apple's revenue was generated from software, services, and sales of other hardware such as iPods.
Apple's biggest competitive advantage is its brand strength. The company has the most valuable brand in the world and developed a strong awareness with billions of consumers and businesses.
While the smartphone market is now saturated, Apple can leverage its brand strength to find the next driver of growth. The company's reputation for quality and innovation make it easier for the business to disrupt new markets and continue generating cash flow from a large group of loyal followers.
With a growing hoard of cash, Apple finally began returning some of it to shareholders several years ago. Apple first paid a dividend in 2012 and has increased its payout by 50% over the last three years.
With more than $55 billion in cash on hand and a low dividend payout ratio near 20%, Apple has excellent dividend growth potential.
Management last raised the company's dividend by 10% earlier this year, and double-digit dividend growth seems likely to continue.
Shares of Apple offer a dividend yield of 2.3% and trade at 11.8 times forward earnings estimates.
This article is commentary by an independent contributor. At the time of publication, the author was long INTC.