Who knew the hot growth stocks of the tech boom would now be some of the best dividend-paying stocks?
Technology companies were once the great growth stocks of the 1990s, and are now emerging as the high dividend-growth stocks of late, with more companies shelling out payouts than ever before in a boom that’s likely to benefit from the Federal Reserve’s ongoing accommodative monetary policies.
In a broad sense, the so-called quantitative easing has fed investors’ appetite for risky assets, and the tech sector in general—along with many other sectors—are likely to continue to benefit from the upside momentum that has helped broad U.S. equities benchmarks climb to record-high territory.
“Certain stock market sectors are potentially poised for more upside than others as the Fed’s actions filter into the economy,” Viktoria Palushaj, market analyst at Citrin Group, told IndexUniverse. “As economic activity continues to pick up steam, cyclical growth industries such as autos, housing, technology, and financials will consistently profit from stronger economic fundamentals.”
But what the Fed-driven easy money era has also fueled is a hunt for yield-producing investments at a time when income from the more traditional bonds is compressed due to ultra-low interest rates. Many tech stocks are emerging as good sources of dividend payments, displacing to some extent defensive sectors of the economy, such as utilities, that have long been heralded for their dependable dividends.
Since 2011, the information technology sector has seen roughly a 19 percent increase in the number of companies paying dividends, according to S&P Capital IQ data—a rise that “has not been lost on investors,” Dylan Cathers, equity analyst with S&P Capital IQ, said in a research note recently.
“Slowly but surely, dividends are becoming a more common characteristic of technology stocks,” Cathers said.
Moreover, the yield on tech names within the S&P 500 Index has increased in the past 2 1/2 years, while the yield is down for names in the telecommunications services or utilities sectors, he noted.
“Part of the attraction to technology names in general is the cyclicality of the companies,” Cathers added. “If the economy is in the early stages of an upswing, these names will likely benefit. Now that many of these stocks are paired with attractive dividend yields, it makes them worth consideration by a wider group of the investing population.”