10 Highest-Rated Tech Stocks That Pay Big Dividends

BOSTON ( TheStreet) -- The information-technology sector is one of the top performers in the S&P 500 this year, with a 12% return, thanks in part to dividend increases among its members.

But technology shares have a record of strong share-price appreciation in a rising economy, and over the past five years have an average annual gain of 3.3%, outdone only by the consumer-staples sector's 5.3% return out of the 10 industries tracked by S&P.

This at a time when the 10-year Treasury note, a fixed-income benchmark, has a paltry 1.65% yield.

So the prospect of share-price appreciation, coupled with dividends that now average 1.6% across the sector, an increase of 70% in the past year-and-a-half, make a nifty combination for long-term investors.

The S&P 500 is up 10.5% this year, and even though technology stocks have bettered that, valuations in the sector are down after a second-quarter decline of roughly 7%.

So now might be a good entry point for investors.


Indeed, S&P Capital IQ equity strategists raised their sector recommendation for tech stocks to "overweight" from "market weight" on June 21, due to the "strong and flexible balance sheets" of many in the sector, "which we think will increasingly be employed to generate value through internal investment, stock repurchases, dividends, and mergers & acquisitions."

There are some particularly attractive stocks in the group now. For example, communications chip set maker Qualcomm ( QCOM) currently has 22 "buy" recommendations and 18 "buy/holds," from the 45 analysts who follow it, and it has a 1.8% dividend yield.

And if it's dividends that are your priority, then telecommunications-services provider Windstream ( WIN), with its whopping 10.35% dividend, should be at the top of your shopping list.

Here are 10 highly rated dividend-paying information-technology stocks, ranked in inverse order of the number of analysts' "buy" ratings:

10. Harris Corp. ( HRS)

Company profile: Harris, with a market value of $5 billion, makes communications equipment for voice, data and video applications for commercial and governmental customers.

Dividend Yield: 3.1%

Investor takeaway: Its shares are up 19% this year, including 8% in the past month. Analysts give its shares one "buy" rating, one "buy/hold," and 12 "holds," according to a survey of analysts by S&P, but S&P says it expects that Harris "will see a modestly negative impact from efforts to lower U.S. military spending (a big part of its business), and we think long-term trends favor growth in its core segments."

9. France Telecom ( FTE)

Company profile: France Telecom, with a market value of $32 billion, is the incumbent telecommunications services provider in France, but also provides services in Spain and Poland and is making efforts in North Africa. Business in France accounts for about half its revenue, with wireless services making up 46% of that, while other international revenue is about 19% of its total.

Dividend Yield: 6.3%

Investor takeaway: Its shares are down 10% this year and have a three-year, average annual loss of 8%. Analysts give its shares one "buy" rating, one "buy/hold," and three "holds," according to a survey of analysts by S&P. S&P, which has it rated "buy" with an $18 price target, a 38% premium to the current price, says the company is facing more competition but "the challenging operating and regulatory environment across Europe has already been priced in, while (it) continues to expand in Africa."

8. Paychex ( PAYX)

Company profile: Paychex, with a market value of $11 billion, provides payroll, human resources, and benefits outsourcing services for small and medium-sized businesses.

Dividend Yield: 4.08%

Investor takeaway: Its shares are up 6.4% this year and have a three-year, average annual return of 12%. Analysts give its shares three "buy" ratings, four "buy/holds," 15 "holds," two "weak hold," and two "sells," according to a survey of analysts by S&P. S&P has it rated "buy" but is cautious on its outlook, citing continued economic weakness in the U.S. and its impact on small businesses and job growth. But it notes that has no debt and over $300 million in cash and investments on the books. Analysts' consensus estimate is for earnings of $1.62 per share this year, and $1.74 in 2013.


7. Windstream ( WIN)

Company profile: Windstream, with a market value of $6 billion, is a telecommunications firm that serves about 3 million phone lines and 1.3 million Internet access customers, primarily in the Southeast and southern Midwest. The firm has recently closed a string of acquisitions.

Dividend Yield: 10.35%

Investor takeaway: Its shares are down 12% this year, including 13% in the past quarter, but have a three-year, average annual return of 15%. Analysts give its shares five "buy" ratings, one "buy/hold," 13 "holds," and one "weak hold," according to a survey of analysts by S&P. But S&P has it rated "strong buy," with a $13 price target, a 34% premium to the current price, and says the company has "stronger fundamentals than many peers, (so) we see the shares as undervalued." It also says the hefty 10%-plus premium looks secure.

6. Applied Materials ( AMAT)

Company profile: Applied Materials, with a market value of $15 billion, is the world's biggest manufacturer of wafer fabrication equipment for the semiconductor industry.

Dividend Yield: 3.15%

Investor takeaway: Its shares are up 8.7% this year, including 15% in the past month. Analysts give its shares five "buy" ratings, four "buy/holds," 13 "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has it rated "strong buy" citing "valuation and a view of improving fundamentals."

5. KLA-Tencor Corp. ( KLAC)

Company profile: KLA-Tencor, with a market value of $8 billion, is the world's leading manufacturer of yield monitoring and process control systems for the semiconductor industry. The systems are used to analyze the manufacturing process at various steps in a product's development.

Dividend Yield: 2.86%

Investor takeaway: Its shares are up 3% this year and have a three-year, average annual return of 27%. Analysts give its shares six "buy" ratings, seven "buy/holds," three "holds," and three "weak holds," according to a survey of analysts by S&P. S&P has a "buy" recommendation on its shares with a $63 price target, a 29% premium to the current price. It says that view "reflects valuation as well as our belief that orders are likely to sequentially rebound over the next several quarters." The target price is based on a P/E of 12.5 times S&P's 2013 operating earnings estimate of $5.03 per share.

4. International Business Machines ( IBM)

Company profile: IBM is one of the world's largest and most respected information-technology companies. Its product line includes system hardware, infrastructure software, outsourcing, and systems integration services. Customers tend to stick with Big Blue after spending on one of its typically expensive systems, which means steady, recurring revenue for the company. Its geographic and product diversity helps it weather virtually any economic storm.

Dividend Yield: 1.44%

Investor takeaway: Its shares are up 7.4% this year and have a three-year, average annual return of 26%. Analysts give its shares eight "buy" ratings, four "buy/holds," 15 "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. S&P has it "buy"-rated with a $227 price target, which is a 16% premium to the current price. Analysts' consensus estimate is for earnings of $15.05 per share this year, and rising 10%, to $16.52 next year. IBM has set a goal of operating earnings of $20 per share by 2015.

3. Automatic Data Processing ( ADP)

Company profile: Automatic Data Processing, with a market value of $28 billion, is in the human resources administration services industry as a provider of payroll processing and benefits administration.

Dividend Yield: 2.8%

Investor takeaway: Its shares are up 5% this year and have a three-year, average annual return of 21%. Analysts give its shares eight "buy" ratings, four "buy/holds," 14 "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. Analysts' consensus estimate is for earnings of $2.74 per share this year growing to $2.99 in 2013. S&P says that "over the longer term, we think the market for payroll outsourcing is relatively untapped, especially in the small and medium-sized business market and overseas, providing opportunities for future growth."

2. Microsoft ( MSFT)

Company profile: Microsoft, with a market value of $258 billion, is the world's biggest software company as the developer of PC software, including the Windows operating system and the Office application suite.

Dividend Yield: 2.6%

Investor takeaway: Its shares are up 20% this year and have a three-year, average annual return of 12%. Analysts give its shares 16 "buy" ratings, seven "buy/holds," 12 "holds," and one "sell," according to a survey of analysts by S&P. Those same analysts expect it to earn $2.69 per share this year, and rise 14% to $3.07 next year. On July 3, Microsoft said it will take a $6.2 billion charge in its Online Services Division segment related to its 2007 acquisition of aQuantive.

1. Qualcomm ( QCOM)

Company profile: Qualcomm, with a market value of $96 billion, is a developer of products and services based on its patented advanced wireless broadband technology. It has a strong balance sheet and is expected to continue to generate sizable cash flow.

Dividend Yield: 1.8%

Investor takeaway: Its shares are up 4% this year, but are down 17% in the past three months. Analysts give its shares 22 "buy" ratings, 18 "buy/holds," three "holds," one "weak hold," and two "sells," according to a survey of analysts by S&P. S&P, has it rated "strong buy," with an $81 price target, which is a 45% premium to its current price. It says "we believe (it) will see solid chipset sales throughout the coming year as the economy begins to improve and with rapid growth in the smartphone market." Analysts' consensus estimate is for earnings of $3.75 per share this year, growing to $4.18 next year.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.