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Historically, the Nasdaq 100 hasn't been well-known as a habitat for dividend stocks. The tech-heavy exchange was full of companies that tended to reinvest their profits into growth projects rather than returning capital to shareholders. But in recent years, more Nasdaq-listed companies have are looking at dividends as a critical part of their total return success.
Below, we examine the 10 top-yielding dividend stocks in the Nasdaq 100 today, with an eye toward identifying whether any of them give you the combination of income and growth prospects that make them ideal candidates for your portfolio.
The Nasdaq 100's High Yield Winners
Here are the 10 highest-yielding stocks among the Nasdaq 100 as of Aug. 18:
Data source: Yahoo! Finance.
The most obvious thing about this chart is the huge lead that Seagate Technology has over its Nasdaq 100 brethren. The maker of hard-disk drives and other data storage products has long been on many investors' danger lists in terms of expectations for a dividend cut in the future, especially because the company has been under considerable pressure as the mobile revolution reduces the importance of PCs, with their traditional reliance on hard drives for storage. In addition, Seagate's free cash flow has been less than its dividend payments in the first two quarters of 2016.
Ordinarily, such a high yield would indeed be a danger sign. However, Seagate has actually seen its yield drop from double-digit percentages earlier this year as the stock recovered somewhat from lows below $19 a share, and optimism about the company's prospects are the primary cause. Investors were pleased by Seagate's recent restructuring announcements, and even though the company expects to reduce production of hard drives, it is looking at focusing more on high-end enterprise applications, which carry higher margins. In addition, efforts to expand its exposure to flash memory and solid-state drives could represent growth opportunities for Seagate as well. Rival Western Digital has also seen some positive movement in its share price, and although its yield also remains high, rays of hope have emerged for the data storage industry.
Another trend you can see in this list of stocks is that it includes many former high-flyers that have come upon tough times. In the semiconductor industry, for instance, Qualcomm and Intel are both going through the pains of adapting to changing conditions in the PC and mobile chip businesses. Cisco has seen similar changes afflict its networking hardware unit. Yet an recently improving tech sector has lifted those stocks and sent their yields lower compared to where they were early in 2016.
Among the stocks above, however, there are some interesting growth candidates. Vodafone has struggled due to competitive pressure in the European wireless telecom market, but the decline in the British pound could bolster its profits due to favorable foreign-exchange impacts and help send the stock higher. Moreover, expansion efforts in emerging markets in Africa, the Middle East, and the Asia-Pacific region could also add to growth. Even though Vodafone no longer has its exposure to the U.S. market after selling its minority stake in Verizon Wireless, the British telecom arguably has even better prospects because of the potential in many underserved emerging markets.
At the same time, Paychex has exposure to the strong U.S. economy. By offering payroll services to employers, especially small and mid-sized businesses, Paychex keeps its finger on the pulse of American employment trends. As job growth has increased and the economy has recovered from the financial crisis, Paychex has been able to sustaining its own growth. With the U.S. still outpacing its peers overseas economically, Paychex offers not only an attractive yield but also plenty of possibilities for rising share prices.
For dividend investors looking at the Nasdaq as a source of stock ideas, the index's traditional aversion to dividends has almost entirely disappeared. By focusing on the stocks with the best growth prospects, however, you'll ensure that you not only get paid while you wait for companies to reach their full potential but also enjoy share-price appreciation when they succeed in their growth goals. Seagate offers that mix for those who are willing to assume the execution risk of the storage-device maker's turnaround efforts, and both Vodafone and Paychex also have opportunities to expand their respective businesses to give dividend investors even more of what they want in the months and years ahead.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm. 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.