10 Highest Dividend Stocks in Tech

By Markets Fool.com

Image source: Getty Images.

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Income investors broadly aim to buy above-average dividends that boast market-beating stock-price growth, as well. That's a tall order, because high-dividend payouts often come shackled to shares that have declined sharply -- often due to underlying business difficulties in stodgy, slow-moving industries.

To combat these natural difficulties, the technology sector just might offer the right mix of growth, dynamism, and dividend yield to be worthy of investor's attention. Below, we'll look at the top-dividend stocks in the technology sector with an eye toward finding the ones that could provide that elusive mix of hefty cash returns and capital appreciation.

Highest dividend-paying technology stocks

Stock

Dividend yield

Payout ratio

Frontier Communications (NASDAQ: FTR)

8.7%

N/A

Western Digital (NASDAQ: WDC)

4.5%

56%

AT&T (NYSE: T)

4.4%

82%

Verizon (NYSE: VZ)

4.2%

64%

HP (NYSE: HPQ)

3.5%

25%

IBM (NYSE: IBM)

3.5%

43%

Qualcomm (NASDAQ: QCOM)

3.4%

57%

Cisco (NASDAQ: CSCO)

3.4%

44%

Xerox (NYSE: XRX)

3.2%

74%

Intel (NASDAQ: INTC)

3%

48%

Source:Yahoo Finance.

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Sustainable dividend

A high dividend won't do you any good if it isn't also growing over time, so we can screen out dividends that aren't well covered by current earnings and cash flow. In Frontier's case, for example, the communications giant booked a net loss in its last fiscal year and for the first quarter of 2016.

Sure, free cash flow is about twice the $125 million it pays out each quarter in dividends. However, Frontier's large debt load and costly expansion plans means that there are more-important priorities than boosting an already-generous payout.

INTC Cash from Operations (TTM) data by YCharts.

Consider IBM as a stronger dividend-growth candidate. Its $1.3 billion quarterly payout was less than half of its (substantial) earnings last quarter, and just one-third of its operating cash flow. Big Blue's debt level, meanwhile, is less than twice its cash on hand. The consistently improving cash production has helped the dividend double since 2010, even as the payout ratio remains below 50% of earnings.

Solid market outlook

Intel stands out in this list as a dividend tech giant with solid growth prospects. Despite weakness in the PC market, Intel's management sees an acceleration in sales gains this year thanks to healthy demand in its data center, programmable solutions, and Internet of Things divisions. Profitability is also running ahead of plan thanks to falling production costs.

Image source: Getty Images.

Unfortunately, restructuring expenses will continue to pinch short-term profits. Yet Intel appears set to emerge from its transition in fine shape to take advantage of major tech trends like cloud computing and big data.

Contrast that outlook with hard-drive giant Western Digital, whose stock has slumped by 40% in the last year as sales volume and profitability dropped. Like Frontier, WDC is hoping a major acquisition will help it right the ship, but sustainable dividend growth won't be possible until sales and earnings recover.

Finding a good value

Thanks to their relatively slow growth and spotty recent financial performance, nearly all of these tech stocks can be purchased at a discount to the broader stock market. Newly formed HP is the cheapest of the group at nine times forward earnings, while Qualcomm weighs in as the priciest, at 16 times next-year's profits. Investors are paying about 19 times forward earnings, meanwhile, for the S&P 500. All of the above stocks also pay an annual yield that's at least 50% higher than the S&P's current 2%.

Of course, the valuation and income gaps alone don't make these dividend stocks screaming buys. But they do suggest that income investors could find some solid long-term bets among mature dividend tech giants right now.

With that in mind, I'm most interested in Intel at today's prices. The chip titan's cash flow and profits seem to have stabilized and are primed for steady growth even if the PC market stays weak, which means its dividend has room to improve from its already market-thumping 3% yield.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm and Verizon Communications. The Motley Fool owns shares of Western Digital. The Motley Fool recommends Cisco Systems and Intel. 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.