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What are we looking for?

Sustainable dividends from tech manufacturers who benefit from their own high R&D spending, but also that of industry startups.

The screen

When looking for technology manufacturers with sustainable dividends, we pay close attention to their research spending. We count that spending as a hidden asset – one generally overlooked by investors and often inadequately captured by the company’s balance sheet.

In fact, high research spending is sometimes dismissed as a liability – tech companies mostly write off their research costs when they spend the money, and this depresses the current year’s earnings. That can fool investors into thinking they’re less profitable – and so less attractive – than they really are.

Beyond investments in their own research and development, top tech manufacturers increasingly back promising startups through their venture-capital (VC) arms. That funding gives them the inside track on any innovative tech to come out of those new firms.

We started this search with an extensive list of dividend-paying tech manufacturers, before singling out those making venture capital investments on top of their own strong R&D investments. We then applied our Dividend Sustainability Rating system, which awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow to cover dividends;
  • One point if the company’s an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Seven dividend paying stocks

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)1Y Ttl. Rtn. (%) Recent Price (US$)
1Microsoft Corp.MSFT-QHighest101.21,706.1-33.2224.51
2Cisco Systems Inc.CSCO-QAbove Average93.5183.3-23.643.91
3Oracle Corp.ORCL-NAbove Average91.7203.9-20.075.66
4Intel Corp.INTC-QAbove Average85.3117.5-46.327.52
5IBM Corp.IBM-NAbove Average84.8126.613.7137.39
6Texas InstrumentsTXN-QAbove Average83.0152.6-13.5164.99
7Qualcomm Inc.QCOM-QAbove Average72.7126.2-33.8110.43

Source: Dividend Advisor

Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

Our TSI Dividend Sustainability Rating System generated seven stocks.

International Business Machines Corp. has operations in more than 175 countries. Through IBM Ventures, it supplements its own high R&D spending, which is equal to 11 per cent of sales (the higher the better – more than 10 per cent is high). Intel Corp. (R&D of 27 per cent of sales) is one of the world’s biggest makers of chips for PCs and servers – and its Intel Capital venture-capital arm helps keep it at the vanguard. Texas Instruments Inc., sells chips and electronic products worldwide. The firm boosts its R&D (8 per cent) with venture investments through TI Strategic Relationships and Ventures. Microsoft Corp., is the world’s largest software provider. Its R&D spending (12 per cent) – plus investments through M12, its venture fund – keeps the company growing. Qualcomm Inc. (19 per cent) focuses on chips and software for wireless devices. Qualcomm Ventures is its venture capital arm. Oracle Corp. is one of the world’s largest software providers, with a focus on the cloud. R&D (14 per cent) is key to the company’s development, with its Oracle VC arm helping to spur that growth. And finally, networking giant Cisco Systems Inc. (13 per cent) sells hardware, software and more. Cisco Investments invests in early-stage firms for future growth.

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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