5 Tech Titans Suitable for Every Income Investor's Portfolio

by: The Dividend Pig

Technology companies are mature. As heretical as that may sound to some, it's true. And yes, there are still start-ups out there with crazy valuations (names like Facebook and Groupon come to mind), but as of today, they are the minority (and not even public). The major names in technology have admitted, at least in one significant way, that they are no longer poised for double digit, year-over-year growth - and that way is dividends.

Maybe these companies pay dividends to create a floor for their stocks, or give them some added appreciation potential, since many of them have been dead, or near dead, for most of the decade. Others may be answering the call of the new, safety minded retiree, who after two major crashes is interested in three things - income, not losing money, and not losing money. Whatever the reason, a slew of tech giants have instituted dividend policies, with some even attempting the regular yearly increases most dividend investors seek. This trend has opened up a new industry for the income oriented investor.

Many of these companies are trading at very reasonable valuations, and as titans of their respective niches, are ready to settle into the moderate growth and stable cash flows that accompany dominant market positions. As the US and other mature markets remain sluggish, these companies should see most of their growth from the emerging economies, like the BRIC countries, as entrepreneurs and established companies alike build new operations - all of which will require computers, servers, software, etc.

While these companies are all years short of reaching elite Dividend Aristocrat status, I fully expect to see at least a name or two join that list in the next 20 years.

Intel (NASDAQ:INTC) is the world's largest chip maker, though they also provide motherboards, connectivity products, and other tech hardware. 2010 was a record year, with revenue reaching an all time high of 43.6 billion, and eps of $2.01. They recently raised their dividend (again) to $0.21 a quarter, on the back of a great Q1. I expect this to be another blockbuster year for Intel, and the stock price has been rewarded, increasing nearly 20% in the past couple of months. At the current price of $23.41 the stock yields 3.6% with a payout ratio of 41%.

International Business Machines
(NYSE:IBM) is an information technology company. The company operates under five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. IBM's dividend has been on a tear in the past 5 years, growing an average of 22.8% a year. Revenue grew only 4.3% from 2009 to 2010, and this number still hasn't caught up to the 103 billion the company made in 2008. Still, the dividend of $2.50 paid in 2010 was only 26% of earnings, leaving plenty of room for growth. And at $169.92, IBM is currently selling at only 14.8 ttm earnings with a yield of 1.8%.

Microsoft (NASDAQ:MSFT) is engaged in developing, manufacturing, licensing and supporting a range of software products and services for different types of computing devices. The company has taken some heat in the past few years for 1) its lagging stock price and 2) its inability to show any sort of quality innovation in emerging technologies, like smartphones and tablets, while also losing major market share to King Steve Jobs. While I do agree with some this, take a look at the numbers. 10 year revenue growth averaging 10.5% a year, earnings growth at 13.6%, and almost no debt. In 2006, the dividend was $0.35 a year. It almost doubled by 2011, to $0.64. The only thing that worries me about MSFT right now is Skype - MSFT has a worrisome acquisition history, and I'm not sure how well this move will play out. Still, at the current price of $25.03 the stock yields 2.6% with a payout ratio of 25% of expected 2011 earnings.

Cisco Systems, Inc.
(NASDAQ:CSCO) designs, manufactures, and sells internet protocol based networking and other products related to the communications and information technology industry. They also provide services associated with these products and their use. The stock has been on a slide in the past year, losing 34% of its value, after disappointing earnings, squeezed margins, and a negative outlook were announced. Investors are worried about competition from Juniper (NYSE:JNPR) and Huawei Technologies (which is backed by the Chinese government). One must decide whether these are short term issues, or deeper structural problems. I would be more interested if they used some of that massive cash hoard to increase the dividend above the paltry $0.06 a quarter they pay now, which is less than 20% of expected 2011 earnings. At the current price of $16.88, the stock yields 1.4%.

Texas Instruments Incorporated (NYSE:TXN) is engaged in the designing and manufacturing of semiconductors that it sells to companies worldwide. In addition, it also sells calculators and related products. The company has a jump on other large chip-makers (notably Intel) in that they already have a good presence in the smartphone market, and are ready for the push into tablets. TXN is coming off a strong year in 2010, with 34% revenue growth and double digit growth in every business segment. TI has great shareholder friendly management, increasing its dividend every year for the past 7 years, while maintaining an aggressive share buyback program. The dividend exploded from 2006 to 2010, growing from $0.14 to $0.49, thanks to the company's new CEO Rich Templeton. At the current price of $35.18, the stock yields 1.5% with a low payout ratio of 20%.

Disclosure: I am long INTC.