In a retirement account, it is important to create current income while keeping opportunities for growth in your portfolio. One of the best ways to keep your portfolio growing, while maintaining a stream of income, is to invest in well-established technology companies.
There are many great tech stocks to consider, but for the purposes of this comparison, we'll stick to those that pay at least a 2% annual dividend. We are also going to limit our results to those companies with a market capitalization of at least $50 Billion and have been in business for a minimum of 20 years. This will be our definition of "well-established" for our purposes.
Our candidates in no particular order are:
Microsoft (MSFT) - With a market cap of $249.3 billion, Microsoft is by far the largest of the companies that fit our dividend criteria. Microsoft is the world's largest software developer, with the Windows operating system and Microsoft Office programs among its long list of products. Microsoft currently trades at 14.92 times TTM earnings and yields 3.08%. However most analysts believe MSFT is cheap, with an average 12-month price target of $35.67 from the analysts covering the company. As far as past performance is concerned, Microsoft has done very well, averaging a 13% annual gain in share price over the past 20 years. This is especially impressive because it includes the awful tech bust of the early 2000's. Since it began paying regular dividends 9 years ago, MSFT has boosted its dividend by 11% annually on average.
Cisco Systems (CSCO) - Cisco is the world's largest supplier of computer networking systems and components, with a current market cap of just over $100 billion. Cisco currently trades at 12.68 times earnings and yields 2.97%. Analysts are optimistic on CSCO, with an average price target of $21.77 on the stock, or 15% above the current price. Over the past two decades, Cisco has averaged a very impressive 15.5% gain in share price. And although it just started regular dividends in 2011, it has already raised its payout twice.
Intel (INTC) - Intel is the world's largest manufacture of microprocessors, and one of the highest yielders in our comparison, currently paying a 3.97% yield. Intel currently has a market cap of $112.4 billion and trades at only 9.6 times earnings. If this sounds cheap, analysts agree with you, with an average 12-month target price of $26.07, or 16% above the current share price. Intel has gained an average of 10.6% annually over the past 20 years, slightly underperforming other tech giants. However, Intel has been paying dividends for the entire 20-year period, a rarity among tech stocks. Intel has increased its regular dividend by an astounding 25.5% annually, boosting quarterly yields from 3/10 of a cent to the current yield of 22.5 cents.
Canon (CAJ) - Canon is currently one of the world's leading manufacturers of plain paper copying machines, digital multifunction devices (MFDs), laser beam printers, inkjet printers, cameras, and steppers and mask aligners. Canon has a market cap of $36 Billion and yields a very nice 4.73%. Analysts are quite bullish on CAJ, with an average $37.11 price target, or 18.2% above current levels. Canon has gained 8.4% on average in the past two decades, and has been paying dividends the entire period, averaging a 16.8% annual increase in payout.
To illustrate the impact all of these percentages and dividend increases have on long-term shareholder value, here is how a hypothetical investment of $10,000 made 20 years ago in each of these companies would have done. In doing my calculations, I assumed all dividends were reinvested in new shares.
MSFT - $133,037 with $3,645 of annual income
CSCO - $156,800 with $3,960 of annual income
INTC - $88,469 with $3,520 of annual income
CAJ - $73,525 with $3,527 of annual income
It is worth mentioning that there are many other great choices for tech investments. Apple (AAPL) just recently began paying a dividend, Google (GOOG) has been doing excellent lately, and IBM (IBM) just missed our dividend cutoff. Some high yielders like Hewlett-Packard (HPQ) were intentionally left off as the level of uncertainty involved is too high to justify comparing them with the companies on this list.
In conclusion, all of these stocks have provided their shareholders with excellent returns over the past two decades, and are widely expected by analysts to continue doing so. Not only do companies like this survive events such as the tech crash, they thrive and add to their market share in the aftermath. Analysts are bullish on all four of these companies, and an investor would be wise to add a couple (or all four) of these stocks to his/her well-diversified dividend stock portfolio.