In today’s market, technology stocks have been basking in the spotlight, basking in the glow of enthusiastic investor sentiment. With expectations of rate cuts and subdued inflation, the technology sector has surged ahead, powered in part by the excitement around artificial intelligence (AI). Historically, income-minded investors have been wary of technology companies, which typically reinvest their earnings to fuel expansion. However, a select group of tech stocks stand out by rewarding their shareholders.
Three prominent technology stocks – ASML Holding, Microsoft, and NetApp – boast both a strong financial position and growing dividends. In addition, they have all witnessed improved earnings prospects over recent months, signaling optimism among industry analysts. For those interested in procuring a steady income stream while also gaining exposure to the technology space, here’s a detailed look at each of these three stocks.
Microsoft’s Robust Dividend Growth
Microsoft, a current Zacks Rank #2 (Buy), has played a pivotal role in driving the market’s robust performance, securing its place in the esteemed ‘Magnificent 7’ group. The company’s outlook for the current year has seen an upward shift, as the Zacks Consensus EPS Estimate of $11.14, reflects nearly 6% growth over the past year. Moreover, the annual dividend yield on Microsoft’s shares currently stands at 0.7%, slightly higher than the Zacks Computer and Technology sector average of 0.6%.
Microsoft’s consistent growth in cash flow underpins its dividend payout. The tech giant generated a substantial $59.5 billion in free cash flow in FY23, with the trailing twelve-month figure equally impressive at $63.3 billion.
ASML Holding: A Leader in Semiconductor Manufacturing
ASML Holding, a global leader in advanced technology systems for the semiconductor industry, has seen modest positive revisions in earnings estimates across various timeframes, contributing to its Zacks Rank #2 (Buy) status. With an annual dividend yield of 0.7% and a sustainable payout ratio of 26%, ASML is committed to ongoing dividend growth, as evident from its 33% five-year annualized dividend growth rate.
ASML has also witnessed substantial revenue expansion, demonstrating double-digit year-over-year growth rates over the past four quarters. In the latest quarter, the company raked in $7.3 billion in sales, marking a significant 25% increase from the corresponding period the year before.
NetApp’s Strengthening Position in Data Infrastructure
NetApp, currently holding a Zacks Rank #2 (Buy), offers enterprise storage and data management software and hardware products and services. Analysts have consistently raised their expectations for the company over the recent months, indicating growing confidence in its prospects.
NetApp’s shares offer a solid annual yield of 2.3%, far surpassing the Zacks sector average of 0.6%. Despite its forecasted growth, the stock is not excessively valued, with its forward earnings multiple at 14.3X, comfortably below both its five-year median and its peak valuation.
Final Thoughts
Dividends are an attractive investment proposition – providing a passive income stream, enabling optimal returns through dividend reinvestment, and offering a buffer against downturns in other holdings. In the case of technology stocks, the prevailing momentum is hard to ignore, with many investors eager for exposure to this sector. For those in pursuit of dividend-paying technology stocks, ASML Holding, Microsoft, and NetApp might just be the ideal considerations.
