How Nvidia, Meta Platforms, Alphabet, and Other Tech Stocks Will Pay You Cash

By Michael Brush

These 15 Growing, Dividend-Paying Tech Stocks Give You the Best of Both Worlds

Dividends are no longer just for utilities and grandpas: big tech companies have also joined the movement.

So far this year, Meta Platforms Inc. (META), Alphabet Inc. (GOOGL) (GOOG) and Salesforce Inc. (CRM) have each started paying quarterly dividends, while Nvidia Corp. (NVDA) has increased its dividend by 150%.

Many investors wonder why. “A lot of people invest in tech stocks for growth and sexiness, but they don’t do it for income,” said Kieran Kirwan, senior investment strategist at ProShares, which offers the ProShares S&P Technology Aristocrats TDV exchange-traded fund.

Dividends paid by tech companies raise troubling questions. Are these payments a sign that growth is over? Do they mean that executives are running out of interesting investment ideas? Should we care about these dividends when yields are low?

Kirwan and three other dividend investing experts weigh in on what tech stock dividends tell us about these companies and yield investing in general. Here are three myths you should debunk.

1. Ditch the stock because the dividend means the glory days are over

Real growth companies don’t pay dividends, the reasoning goes. This myth seems to be confirmed by the underperformance of dividend-paying companies this year, and even over the past decade.

But that approach is short-sighted. “The fact that Meta and Google are paying dividends indicates that these two companies have reached a size where their growth is starting to mature,” acknowledged Randy Hare, director of research at Huntington National Bank, which owns several dividend-paying tech companies. “But it doesn’t happen overnight. It’s a transition that takes years.”

Consider Microsoft Corp. (MSFT) and Apple Inc. (AAPL), said John Buckingham of Prudent Speculator, who invests for both yield and capital appreciation. Since Microsoft began its dividend in January 2003, it has posted an annualized return of 16%, compared with 10.8% for the S&P 500 SPX. Meanwhile, Apple’s annualized return is 23.2% since its first dividend in July 2012, compared with 14.6% for the S&P 500.

“Paying a dividend doesn’t mean there can’t be growth,” Buckingham said. “I would rather see companies return some of their capital to investors while continuing to invest in their business. They can do anything.”

Dividend-paying companies typically have impressive long-term track records. From 1927 to 2023, U.S. dividend-paying stocks posted annualized gains of 10.3% — compared to 8.7% for nondividend-paying companies and 9.7% for the broader market — with lower volatility, according to investment research firm Morningstar.

This outperformance makes sense because companies that don’t pay dividends are often more speculative, while those that pay dividends tend to be established, more stable companies that also have a more loyal shareholder base.

2. Dividends damage the image of managers, who should know how to invest to obtain better returns.

The opposite is true. Giving cash to shareholders reduces cash positions, which can help prevent managers from making stupid mistakes.

Apple is a good example of how corporate executives can be tempted by huge sums of money, Hare said. “They invested a lot of money in autonomous driving, and investors gave them the benefit of the doubt,” he said. “But that investment didn’t pay off, and they shut down the company.”

Buckingham gives a similar example with Meta’s investments in the metaverse, which so far have not paid off. In truth, committing to paying dividends instills discipline.

3. Technology dividends are so small they don’t really matter

Meta, Alphabet, and Salesforce all have dividend yields below 1%. That’s low, but the Morningstar US Market Index recently had a yield below 1.5%. There are three important things to keep in mind.

First, because these are tech companies that are growing solidly, they are likely to continue to raise their dividends. Second, paying a dividend is an important message about a company’s prospects. “It’s probably the strongest signal a company can send that it has confidence in the future,” Kirwan said, because cutting a dividend can create investor uncertainty and selling pressure.

Third, dividends are preferable to share repurchases. Sure, share repurchases seem more attractive because dividends are taxed. But dividends make a stock attractive to a broader pool of investors, noted Will Muggia, managing director at Westfield Capital Management, who added that companies often miss share repurchases. “We’ve seen significant value destruction with poorly timed share repurchases by many technology companies,” Muggia said.

Some Dividend Payers Favored in Tech Sector

Since dividend-paying tech companies can be a winning combination, here are a few to consider.

Kirwan selects companies with consistently increasing dividends for the three ETFs he manages: ProShares S&P Technology Dividend Aristocrats ETF, ProShares S&P 500 Dividend Aristocrats NOBL and ProShares S&P MidCap 400 Dividend Aristocrats REGL.

Kirwan cited Jack Henry & Associates Inc. (JKHY), which sells processing software to regional banks, and Badger Meter Inc. (BMI), which offers smart water meters to local governments and has raised its dividend every year for decades.

Kirwan also likes Broadcom Inc. (AVGO), the chip supplier that has become a popular player in the artificial intelligence space. Broadcom’s double-digit revenue growth over the past five years has supported five-year annualized dividend growth of 21%, and the yield is 1.37%.

Hare, of Huntington Private Bank, favors several technology companies in terms of performance, including Microsoft, Broadcom, software giant IBM Corp. (IBM) and Qualcomm Inc. (QCOM), whose communications chips are increasingly used in devices beyond smartphones.

Westfield Capital Management’s Muggia likes Meta because it uses AI to improve its products and grow revenue; Microsoft for its pricing power, strong cloud presence and use of AI to accelerate growth; and SAP (SAP), which is driving revenue growth by moving its business to the cloud.

Buckingham at Prudent Speculator picks Qualcomm, Corning Inc. (GLW) for optical communications equipment, Hewlett Packard Enterprise Co. (HPE) for enterprise storage and networking, and Seagate Technology Holdings (STX) for storage drives.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned META, GOOGL, NVDA, MSFT, APPL, AVGO, and QCOM. Brush has suggested META, GOOGL, CRM, NVDA, MSFT, APPL, AVGO, IBM, and QCOM in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks.

Plus: This dividend stock approach can diversify your exposure to S&P 500 index funds

Also: Nvidia loses $279 billion in market cap, but its stock has many defenders

-Michael Brush

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09-07-24 1122ET