Tech companies are typically not very popular among dividend investors, as they are traditionally considered too risky or volatile to be trusted as reliable dividend plays. However, the world is changing. Companies such as Apple , Microsoft , and Cisco offer both solid fundamental quality and undisputed financial strength, and they have what it takes to continue paying growing dividends for years to come.
Continue Reading Below
What Apple has achieved is nothing short of breathtaking. The company delivered a big sales increase of almost 30% year-over-year during the last quarter, reaching $74.6 billion in total revenue. Because of rising profit margins and a reduced share count via stock buybacks, earnings per share jumped by an even higher 48% versus the same quarter a year ago.
The iPhone is the main growth driver for Apple. Thanks to the booming popularity of its new iPhone 6 models, sales in this segment increased 57% during the last quarter. Going forward, Apple will be launching its new Apple Watch in April, which will be crucial when it comes to evaluating its ability to expand into new product categories. On a longer-term basis, there are strong reasons to believe Apple is working on an electric car, which could propel the company into a gigantic industry with enormous potential for disruption.
Apple is a cash-producing machine -- the company brought in nearly $30.5 billion in free cash flows during the last quarter, a 47% year-over-year increase. In addition, Apple holds a gargantuan $178 billion in cash and liquid investments on its balance sheet. Management returned $7.8 billion to shareholders during the last quarter, so Apple clearly has enormous room to continue rewarding shareholders via growing dividends and buybacks in the years ahead.
Over the past 12 months, Apple has returned over $57 billion to investors when including both dividends and buybacks. At current prices, Apple pays a dividend yield in the neighborhood of 1.5%.
Continue Reading Below
Microsoft is building an impressive track record of dividend growth over the past several years, and 2015 will mark the 10th consecutive year of uninterrupted dividend growth from the company. Microsoft stock pays $0.31 in quarterly dividends, which at current prices represents an attractive 2.8% dividend yield.
The mobile revolution is clearly changing the competitive dynamics in the tech industry, and it is putting a drag on growth rates at Microsoft. On the other hand, the company is betting on its coming Windows 10 to reinvigorate performance over the coming years. The company is also doing a sound job of adapting to new industry trends such as cloud computing. Commercial cloud revenue grew 114% during the last quarter, driven by Office 365, Azure, and Dynamics CRM Online. The segment is now on an annualized revenue run rate of $5.5 billion.
During the six-month period ended in December, Microsoft produced $12.7 billion in operating cash flows, while capital expenditures absorbed only $2.8 billion of that, so free cash flows amounted to almost $10 billion. Microsoft allocated $4.3 billion to buybacks and $4.2 billion to dividends during the period, proof that capital distributions are not only sustainable but a priority for the company.
Management is deeply committed to distributing capital to shareholders. During the latest conference call,CEO Satya Nadella had this to say:
Earlier today, we announced our intention to complete the existing $40 billion share repurchase authorization by Dec. 31, 2016. This is another step in our ongoing commitment to increase capital return for our shareholders while investing in the growth of our business. It too shows our optimism for the future growth of Microsoft. As we move forward, we will certainly continue to be thoughtful in our capital return decisions balanced across dividends and share repurchases.
On Feb. 11th, Cisco announced a 10.5% dividend increase, bringing the quarterly payment to $0.21 per share. After this increase, Cisco stock yields 2.8%.
Cisco has been hurt by weak corporate spending and increased competition from low-cost players over the last several years, introducing a considerable headwind for the business. However, Cisco reported better-than-expected sales and earnings during the last quarter, and performance was generally encouraging across the the different business segments.
Importantly, Cisco is in a position of strength to benefit from booming connectivity needs around the globe in the years ahead. According to CEO John Chambers:
Every country, every city, every business, every home, and every car is becoming digital. In our view, Cisco is better positioned than any other company to help our customers reinvent their business and technology strategies as they become digital organizations.
Cisco returned $2.2 billion to shareholders during the last quarter, including $1.2 billion via share buybacks and $974 million through dividends. In the first half of fiscal 2015, the company returned approximately $4.2 billion, or 86% of free cash flows, so management still has room to raise distributions, especially if the latest earnings report from Cisco is a sign of accelerating growth in the future.
The article 3 Tech Powerhouses for Dividend Investors originally appeared on Fool.com.
Andrs Cardenal owns shares of Apple. The Motley Fool recommends Apple and Cisco Systems. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.