Common sectors that many people think of when thinking about dividends include utilities, finance, and consumer goods.
However, it may surprise some to find that some technology companies also reward their investors quite well.
Technology stocks are generally not targeted by income-oriented investors. These companies typically use cash to drive growth.
Still, big tech stocks like Microsoft MSFT, Texas Instruments TXN and Oracle ORCL have no problem paying investors.
And they’ve increased their payouts significantly over the past five years.
Below is a chart showing the year-to-date performance of all three stocks, blended against the S&P 500 as a benchmark.
Image Source: Sachs Investment Research
As you can see, TXN and ORCL have outperformed the general market year-to-date, while MSFT has lagged behind. Let’s take a closer look at each.
microsoft
We are all familiar with the giant Microsoft, one of the world’s largest and broadest technology providers. MSFT is currently ranked 3rd (hold) by Zachs.
The company’s annual dividend yield is now 1.1%, one notch above the Zacks Computer and Technology sector average.
Impressively, MSFT has increased its dividend by a factor of five over the last five years, reaching nearly 10% annual dividend growth over the five years.
Image Source: Sachs Investment Research
Microsoft is one of the largest cash generators in the S&P 500. In its latest release (Q1 2023), the company reported his impressive free cash flow of $16.9 billion.
Image Source: Sachs Investment Research
Texas Instruments
Texas Instruments is an OEM manufacturer of analog, mixed-signal, and digital signal processing (DSP) integrated circuits. TXN currently holds Zacks Rank #3 (hold).
TXN’s annual dividend currently yields a solid 2.8% combined with a sustainable payout rate of 49% of earnings. As you can see, the company’s current yield is easily above the Zacks sector average.
TXN payouts have increased by 15% over the last 5 years.
Image Source: Sachs Investment Research
Additionally, the company recently posted strong earnings, beating earnings and earnings estimates for four consecutive quarters.
In the latest edition of TXN (Q3 2022), the company recorded a 3.4% bottom line profit and a surprise sales of 2.7%. Below is a graph showing the company’s earnings by quarter.
Image Source: Sachs Investment Research
Oracle
Oracle is one of the largest providers of enterprise-class database, middleware, and application software, offering cloud solutions and services that can be used to build and manage a variety of cloud deployment models.
ORCL has seen a positive earnings forecast revision over the past few months, helping to land the stock in favor of Zacks Rank 2 (Buy).
As it stands, ORCL’s annual dividend yield is 1.6%, well above the Zacks sector average. In addition, Oracle has increased its shareholder rewards, with five-year annual dividend growth of 14%.
Image Source: Sachs Investment Research
Oracle’s growth profile is also solid. Earnings are expected to rise slightly by 1.2% in the current fiscal year (FY23), with a further 11% increase in FY24. Projected earnings growth is paired with projected Y/Y earnings growth of 17% in FY23 and 6.8% in FY24.
As with MSFT, the company’s ability to generate cash cannot be ignored. In its latest earnings call (Q1 2023), Oracle reported free cash flow of $4.6 billion.
Image Source: Sachs Investment Research
Conclusion
Technology is not the typical sector flocked by income-oriented investors. In general, stocks in the utilities, financials and consumer goods sectors are common targets for these investors.
Still, there are some technology stocks that reward shareholders, such as Microsoft MSFT, Texas Instruments TXN, and Oracle ORCL, whose dividends are increasing.
For those looking for income combined with exposure to technology, all three fit the bill exactly.
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