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:
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."