Megastocks Alphabet (GOOGL), Meta
Platforms (META),
and Salesforce (CRM) have
announced
their
first-ever
dividend
payouts,
joining
a
growing
number
of
smaller
tech
stocks
that
are
now
rewarding
investors
with
payments.
While
the
yields
offered
by
most
tech
names
are
relatively
small,
their
potential
to
grow
dividend
payouts
along
with
earnings
over
time
is
attractive
for
many
investors
focused
on
dividend
growth.
This
is
changing
the
complexion
of
dividend
growth
strategies
away
from
financials
and
other
slower-growing
companies.
By
way
of
a
case
study,
tech
stocks
have
increased
from
2.3%
of
the Morningstar
US
Dividend
Growth
Index (made
up
of
securities
with
a
history
of
uninterrupted
dividend
growth
and
the
capacity
to
sustain
that
growth)
in
2003
to
18.0%
at
the
end
of
2023.
With
market
returns
driven
in
recent
years
by
big-tech
names
and
growth
stocks
more
broadly,
this
dynamic
is
filtering
into
dividend
growth
investing.
As
big-tech
stocks
such
as
Meta
and
Alphabet
issue
dividends,
income
strategies
now
“have
access
and
exposure
to
those
names
that
have
driven
the
market
more
recently.”
So
says
Matt
Quinlan,
lead
portfolio
manager
for
the
$3.9
billion
(£3
billion)
Franklin
Equity
Income
fund
and
the
$27.4
billion
Franklin
Rising
Dividends
fund.
Tom
Huber,
portfolio
manager
for
the
$24.4
billion
T.
Rowe
Price
Dividend
Growth
fund,
thinks
this
trend
still
has
more
room
to
go.
“There
will
be
more
and
more
opportunities
for
dividend
growth
investors
to
buy
technology
stocks,”
he
says.
For
investors,
however,
there
is
one
possible
catch.
While
the
trend
means
dividend
growth
strategies
may
capture
more
of
the
overall
stock
market
gains,
it
could
also
lessen
their
appeal
as
portfolio
diversifiers.
“The
inclusion
of
the
big
names
[Meta,
Alphabet]
in
any
sort
of
dividend
indexes
or
dividend
growth
indexes
is
very
likely
to
increase
their
correlation
with
the
broad
market,”
says David
Harrell,
editor
of
the
Morningstar
Dividend
Investor
newsletter.
Tech
Stock
Dividend
Trends
For
the
most
part,
technology
companies
and
growth
stocks
typically
do
not
take
the
cash
they
generate
and
send
it
back
to
investors
through
dividends.
Instead,
that
cash
is
reinvested
in
the
business
to
fuel
additional
growth
or
returned
to
investors
through
share
buybacks.
Still,
the
announcement
of
dividends
by
key
big-tech
companies
extends
a
long-term
trend.
“You
saw
it
first
with
semiconductors,”
says
Quinlan,
who
points
to
Texas
Instruments (TXN) issuing
its
first
dividend
in
1985,
Analog
Devices (ADI) paying
out
in
2003,
and
Broadcom (AVGO) following
suit
in
2010.
“These
companies
have
attractive
financial
models
that
generate
tremendous
cash
flow,”
he
explains.
“They
can
both
invest
in
the
business
and
reinvest
to
maintain
those
competitive
positions,
while
also
paying
dividends.”
The Morningstar
US
Target
Market
Exposure
Index,
which
measures
the
performance
of
the
top
85%
of
the
investable
universe
in
the
United
States
by
market
cap,
has
also
seen
a
modest
influx
of
dividend-paying
tech
stocks.
In
2008,
22
stocks
in
the
index
were
tech
dividend
payers.
By
2015,
that
number
had
grown
to
41.
At
the
end
of
2023,
there
were
47.
10
Dividend
Paying
Tech
Stocks
As
of
April
30,
2024,
here
are
the
10
dividend-paying
tech
stocks
with
the
largest
weight
in
the
Morningstar
US
Target
Market
Exposure
Index:
•
Microsoft
[MSFT];
•
Apple
[AAPL];
•
Nvidia
[NVDA];
•
Alphabet
[GOOGL];
•
Meta
Platforms
[META];
•
Broadcom
[AVGO];
•
Salesforce
[CRM];
•
Cisco
Systems
[CSCO];
• Accenture
[ACN];
•
Qualcomm
[QCOM].
More
Names,
But
Low
Dividend
Yields
Though
more
tech
stocks
are
paying
dividends,
the
yields
are
low.
The Morningstar
US
Technology
Index has
the
smallest
forward
dividend
yield
out
of
all
the
Morningstar
sector
indexes,
at
0.72%.
Excluding
real
estate,
the
two
highest-yielding
sectors
are
utilities,
at
3.44%,
and
energy,
at
3.10%.
Huber
says
the
low
yield
is
partly
due
to
the
mindsets
of
management
teams
at
big
tech
companies.
“It
takes
time
for
the
companies
to
get
to
a
point
where
they
understand
they
are
grown
up,
mature,
and
generating
more
cash
than
they
need,”
he
explains.
Dividends
are
a
commitment,
he
notes.
“Once
you
start,
you
certainly
don’t
want
to
cut,
and
ideally
you
grow.”
Additionally,
he
says
some
firms
worry
that
paying
dividends
will
signal
to
investors
that
they
do
not
expect
strong
growth
to
continue.
Within
the
Morningstar
US
Target
Market
Exposure
Index,
the
average
forward
dividend
yield
is
1.14%.
The
highest-yielding
stock
is
Cisco,
at
3.42%,
and
the
lowest-yielding
is
Nvidia,
at
just
0.02%.
Furthermore,
while
all
the
stocks
in
the
group
have
grown
the
dividend
dollar
amount
paid
out
annually
over
the
past
10
years,
only
Qualcomm,
Cisco,
and
Broadcom
have
grown
their
yields.
Accenture,
Microsoft,
Apple,
and
Nvidia
have
seen
their
yields
fall
significantly.
Soaring
share
prices
and
modest
dividend
increases
have
driven
them
down
over
time,
as
a
yield
is
a
function
of
a
stock’s
price.
Nvidia
is
the
most
extreme
example,
as
its
yield
shrunk
by
34.09%
from
2013
to
2023
on
an
annualised
basis
while
its
share
price
surged
61.89%.
https://www.morningstar.co.uk/static/UploadManager/Assets/techdivs1.png
Dividend
Growth
vs
Dividend
Income
Strategies
Dividend
strategies typically
fall
into
one
of
three
categories:
income,
growth,
or
a
blend.
Dividend
income
strategies
are
generally
focused
on
high-yielding
companies,
Quinlan
says,
whereas
dividend
growth
strategies
focus
on
companies
that
can
“significantly
and
consistently
increase
their
dividend
over
time.”
The
Franklin
Rising
Dividends
fund,
a
dividend
growth
fund,
holds
22%
of
its
portfolio
in
tech
stocks,
with
names
like
Microsoft,
Roper
Technologies (ROP),
Accenture,
Texas
Instruments,
and
Analog
Devices
in
its
top
10
holdings.
“All
of
those
would
be
examples
of
businesses
that
we
like
that
have
attractive
growth
in
terms
of
their
ability
to
grow
the
business
and
have
innovative
new
products
to
drive
capital
appreciation
over
time,”
says
Quinlan.
Additionally,
he
believes
that
“their
dividend
payments,
in
terms
of
the
per
share
amounts,
will
continue
to
go
up.”
The
T.
Rowe
Price
Dividend
Growth
fund
also
holds
22%
in
tech
stocks,
with
Microsoft
and
Apple
holding
the
top
two
spots
in
the
portfolio.
Looking
at
income
strategies,
tech
stocks
are
not
as
widely
held.
The Morningstar
Dividend
Yield
Focus
Index,
which
tracks
stocks
with
attractive
dividend
yields
and
strong
financial
quality,
is
8%
tech
stocks.
This
is
less
than
half
the
amount
of
the
Dividend
Growth
Index.
The
average
yield
on
stocks
within
the
dividend
yield
focus
index
is
3.98%,
higher
than
the
yield
on
any
single
tech
stock
in
the
Total
Market
Exposure
Index.
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