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Summary

  • The technology sector is experiencing one of the highest dividend appreciation rates in the market currently.
  • Some tech ETFs are now offering yields that are higher than the S&P 500.
  • This article profiles one technology index ETF, one sector-specific ETF and one international technology ETF.

When people think of big dividends from their investments they usually think of places like utilities, financials and real estate. They might be surprised to know that the technology sector currently has one of the highest dividend appreciation rates in the entire market. Tech companies that have historically pumped most if not all of their income back into the business are now paying larger and larger chunks of it back to shareholders.

As a result, we're starting to see some impressive yields coming out of tech stocks. You can certainly pick out individual tech stocks for growth and income exposure. However, if you're looking for some broader exposure to some of the highest yielding companies in the tech sector, consider the following 3 ETFs.

First Trust NASDAQ Technology Dividend Index Fund (TDIV)

If you want a simple one-stop ETF for straightforward technology dividend payers, this is probably the place to start.

It reads like a who's who of the biggest NASDAQ 100 names. Companies like Intel (INTC), Microsoft (MSFT), Cisco Systems (CSCO), IBM (IBM) and Apple (AAPL) represent around 40% of this ETF's total assets. While the stereotype might be that technology companies are especially risky, many of the names in this portfolio have been around for decades and offer products and services that are well-established in the world economy. In other words, these aren't "hot" names like Netflix (NFLX).

Better yet, many of these stocks represent excellent value. Technology Dividend Index has a P/E ratio of 16 versus the S&P 500's 17 and the yield while its yield of 2.41% also bests the S&P 500's yield of 1.86%.

Market Vectors Semiconductor ETF (SMH)

If you're looking for a little sector specific exposure to technology, the semiconductor group led by Intel currently leads the way on yield.

Much like Technology Dividend Index, this fund looks for broad exposure to the more mature semiconductor names like Taiwan Semiconductor (TSM.TW) and Texas Instruments (TXN) and stays away from the more volatile pure internet plays. Its expense ratio of just 0.35% is among the least expensive and its year-to-date return of over 5% ranks near the top of technology specific funds. It currently yields 1.45%.

One thing to keep in mind with this ETF is that it currently pays its dividend only once per year. If you're looking for regular income from an investment, you may want to consider the ETF above or look elsewhere altogether.

SPDR S&P International Technology Sector (IPK)

Solid dividend plays in technology aren't just limited to the United States. This fund actually has very little exposure to North America so you start adding a lot of names like Nokia (NOK), Hitachi (HTHIY) and Samsung (SSNLF). The current yield is 1.38%.

Like the Technology Dividend Index, the portfolio as a whole remains undervalued in relation to the market. It has a current P/E of just 14 and the mega-cap tilt of the portfolio helps limit the risk to investors. One of the risks that does exist, however, is liquidity. The ETF only has roughly $14 million in assets and only trades around 1,300 shares on a typical day so the bid-ask spread on this ETF could be large.

Conclusion

Technology has long been a growth sector but now it's becoming a growth and income sector. Many of the mega-caps pay dividends of 3% or above and that's being reflected in the yields on these ETFs. Each of the ETFs listed above combine low expenses and above average yields that can act as both a key long-term holding in a portfolio or a risk-reducing hedging tool.

Source: 3 High Dividend Technology ETFs That Deserve Your Attention