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Recently, we discussed a defensive investing strategy for the Services sector and we argued that investing in high dividend yielding services stocks may be a better option for the near future.

Defensive investing with high dividend yielding stocks is a valuable strategy especially in inflationary environments. In bull markets, defensive investing may not bring in the best returns for investors. Though, it provides better protection in down markets.

This strategy can be applied to the Technology sector as well. As markets exited from recession, low dividend Tech stocks may have benefited from the uptrend so far. However, we believe investors should be cautious about the upcoming inflationary environment. In order to be protected against inflation, now may be a good time to play more defensive and pick stocks with high dividend yields.

We compiled a list of top 30 U.S. Technology stocks (the sector classifications are sourced from Finviz) by market cap and ranked them based on their 12-month dividend yields. The stocks with dividends and their performances are shown below:

STOCKS WITH DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

AT & T

T

5.4%

9.81%

29.71%

Verizon

VZ

5.2%

6.80%

38.03%

Thomson Reuters

TRI

3.0%

6.54%

7.97%

Intel Corp.

INTC

2.9%

10.00%

4.16%

Automatic Data Processing

ADP

2.6%

17.34%

31.03%

Microsoft Corporation

MSFT

2.3%

-6.92%

-8.76%

Applied Materials Inc.

AMAT

1.9%

7.51%

16.50%

International Business Machines

IBM

1.6%

16.20%

36.33%

Texas Instruments

TXN

1.4%

9.55%

39.13%

QUALCOMM

QCOM

1.3%

14.86%

54.30%

Broadcom Corp.

BRCM

1.0%

-22.09%

0.83%

Corning Inc.

GLW

1.0%

8.04%

14.39%

Hewlett-Packard Company

HPQ

0.8%

-2.38%

-15.82%

Oracle Corp.

ORCL

0.6%

12.86%

45.39%

Cisco Systems

CSCO

0.3%

-12.70%

-32.41%

AVERAGE

5.03%

17.39%

The stocks with no dividends, and their performances are shown below:

STOCKS WITH NO DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

Apple Inc.

AAPL

0.0%

7.76%

36.86%

Google Inc.

GOOG

0.0%

-9.48%

3.07%

EMC Corporation

EMC

0.0%

18.56%

44.72%

Vmware Inc.

VMW

0.0%

5.13%

54.14%

Dell Inc.

DELL

0.0%

19.48%

5.27%

Yahoo! Inc.

YHOO

0.0%

11.61%

13.66%

Cognizant Technology Solutions

CTSH

0.0%

5.64%

49.46%

American Tower Corp.

AMT

0.0%

2.77%

29.88%

Juniper Networks Inc.

JNPR

0.0%

1.03%

32.36%

NetApp Inc.

NTAP

0.0%

-3.26%

56.70%

Salesforce.com

CRM

0.0%

0.54%

55.23%

Agilent Technologies Inc.

A

0.0%

20.40%

45.89%

Adobe Systems Inc.

ADBE

0.0%

10.36%

-0.90%

Intuit Inc.

INTU

0.0%

9.82%

51.61%

Motorola Solutions

MSI

0.0%

-22.05%

1.9%

AVERAGE

5.22%

31.99%

In the last 52-week period, the average return of the dividend yielding technology stocks was 17.39%. The second group of 15 stocks with no dividend yields performed much better in the same period as we expected, returning 31.99% on average. However, these two groups have performed at almost the same level since the beginning of the year. The average YTD return of the first group was 5.03% vs. 5.22% for the second group. As the returns of the two groups are comparable this year, it seems now is a good time to switch to dividend yielding technology stocks.

Five technology stocks with the highest dividend yields are as follows:

1. AT & T (T): AT&T is a large telephone and television services provider. T has a 5.4% dividend yield and returned 29.71% during the past 12 months. T recently traded at $31.69 and gained 9.81% year-to-date. The stock has a market cap of $187.54B and P/E Ratio of 9.04.

2. Verizon (VZ): Verizon is a global telecommunications company. VZ has a 5.2% dividend yield and returned 38.03% to its investors during the past 12 months. VZ recently traded at $37.57 and returned 6.80% year-to-date. The stock has a market cap of $106.29B and P/E ratio of 30.06. Bruce Berkowitz’s Fairholme, Phill Gross’ Adage Capital and Clough Capital Partners have large positions in Verizon.

3. Thomson Reuters (TRI): Thomson Reuters is a provider of information for businesses and professionals worldwide. TRI has a 3.0% dividend yield and gained 7.97% during the past 12 months. TRI recently traded at $39.67 and returned 6.54% in 2011. The stock has a market cap of $33.15B and P/E ratio of 32.20. Daniel Bubis’ Tetrem Capital had the largest position in TRI at the end of December.

4. Intel Corp. (INTC): Intel is a global technology company, producing semiconductor chips. INTC recently traded at $23.03 and has a dividend yield of 2.9%. INTC returned 4.16% during the past 12 months, while it gained 10.00% since the beginning of the year. The stock has a market cap of $125.56B and P/E ratio of 10.77. Jim Simmons and David Tepper have large positions in INTC.

5. Automatic Data Processing (ADP): Automatic Data Processing is a global company providing integrated computing and business outsourcing. ADP has a 2.6% dividend yield and traded at $54.16 recently. ADP returned 31.03% during the past 12 months, while it returned 17.34% year-to-date. The stock has a market cap of $26.87B and P/E ratio of 22.12. Jean-Marie Eveillard’s First Eagle had the largest position in ADP at the end of December. Bill Ackman’s Pershing Square also had $65 Million in ADP.

Source: It May Be Time to Rotate to High Dividend Tech Stocks