High-flying technology stocks like Tesla tend to get the most attention from the media and from investors. But investors wanting more durability and less volatility in their portfolios might want to focus instead on dividend-paying stocks. Dividend payers, especially those that grow their dividends each year, can be great stocks to own for the long haul and some can be just as effective in helping someone build up wealth to fund retirement.
Let’s take a look at three dividend-paying technology stocks worth closer consideration in August.
1. Microsoft: 0.88% dividend yield
Microsoft (MSFT -0.26%) is one of the largest companies in the world with a market cap of $2.1 trillion. The software giant is known for its Microsoft Office products, personal computing division, and even its Xbox video game segment. All these subsidiaries helped drive the company’s revenue to $198 billion last year.
However, the highlight of Microsoft’s business right now is cloud computing, specifically its Azure division. Azure is a cloud infrastructure provider that sells computing and storage services to other businesses, allowing them to forego buying computer servers themselves. Like Amazon Web Services (AWS) and Alphabet‘s Google Cloud, Microsoft Azure is growing quickly as the world shifts from on-premise servers to the cloud. Last quarter, Microsoft’s Intelligent Cloud revenue was $20.9 billion, with Azure driving the majority of this growth with revenue up 40% in the period.
Azure, along with the durability of Microsoft’s other segments, should help propel Microsoft’s earnings power to new heights this decade. This earnings growth will help fuel its growing dividend, which is currently yielding 0.88%. While not a huge yield, the company’s dividend per share is up 200% in the last 10 years. If Azure continues to grow at a fast pace, investors should expect this dividend growth to continue in the future.
2. Texas Instruments: 2.51% dividend yield
Not just a graphing calculator company, Texas Instruments (TXN -0.33%) is one of the leading semiconductor manufacturers worldwide. Unlike the leading-edge technology innovators, the company focuses on having a diverse portfolio of older technology chips that are in steady demand across the manufacturing, automotive, and electronics industries.
This focus, along with a great brand, has led Texas Instruments to generate considerable profits for shareholders. Last quarter, revenue grew 14% year over year to $5.2 billion with trailing-12-month free cash flow of $5.9 billion. With all this cash flow, the company pays out a healthy dividend yielding 2.51% that has grown a whopping 557% in the last 10 years.
Industry experts expect semiconductor demand to grow by more than 66% by 2030. Along with this industry tailwind, Texas Instruments looks primed to continue generating sold cash flow for shareholders and steadily increasing its dividend payments.
3. Apple: 0.55% dividend yield
Lastly, we have the largest company in the world, Apple (AAPL -0.14%). The $2.7 trillion market cap company has dominated the smartphone market with its premium iPhone product, especially in the United States. It also has a growing mix of other computing devices like the iPad, Airpods, and the Apple Watch. On top of these devices, Apple has a strong software and services business driven by sales on its App Store. For reference, Apple’s services business generated $19.6 billion in revenue just last quarter, or almost $80 billion on an annualized basis.
This combination of hardware and software dominance has led Apple to become extremely profitable. Over the last 12 months, the company has generated $108 billion in free cash flow. With so much cash coming in, Apple has increasingly returned cash to shareholders in the form of share repurchases and dividends. Its dividend is currently yielding just 0.55% but has grown 841% in the last 10 years.
If you believe in the continued dominance of the iPhone and Apple’s computing ecosystem, this can be a great dividend payer to own in your portfolio.
A word about yields
For context on dividend yields, it should be noted that yields can appear quite low (even when the company pays a decent dividend) if the stock’s price is growing quickly.
All three of these stocks are outperforming the S&P 500 over the past couple of years and their dividends appear misleadingly small as a result. Investors focused on dividends should take this stock price appreciation into account when determining if the dividend-paying stock is worthy of consideration.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Tesla, and Texas Instruments. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.