Dividend investors tend not to think about tech stocks when seeking income. Many emerging tech plays forgo dividend payments to invest in growth. Also, even when they pay dividends, they tend to have dividend yields below the S&P 500 average of 1.5%.
Nonetheless, some long-time tech companies have matured and followed the lead of their non-tech counterparts by offering a payout. Not only do these stocks offer generous dividends, but they also tend to hike payouts annually. Such conditions make tech-oriented dividend stocks like International Business Machines (NYSE: IBM), Corning (NYSE: GLW), and Texas Instruments (TI) (NASDAQ: TXN) excellent choices for income investors.
IBM has more closely resembled non-tech industries when it comes to dividend payments. It has offered payouts since 1916, and in 2023 it hiked its payout for the 28th straight year. That raises the annual dividend to $6.64 per share, taking the dividend yield to about 4.2%.
Additionally, the stock has risen by close to 30% since reaching a low in May. This growth may be reversing a long-term downtrend in the stock that started when growth in its tech businesses began to stagnate.
This is likely because growth prospects for IBM have dramatically improved. Under current CEO Arvind Krishna, IBM has become a cloud company. It has also made numerous cloud-related acquisitions and, with its purchase of Red Hat in 2019, remains a leader in the hybrid cloud. It also spun off a lagging managed infrastructure business into Kyndryl.
With the costs of the spin-off behind it, it can start generating the free cash flow needed to support its payout. For the last 12 months, it earned over $10 billion in free cash flow, enough to cover the $6 billion in dividend costs. As long as it can maintain free cash flow and grow its cloud revenue, IBM could become the most recognized income stock in the cloud.
Like IBM, Corning may also resemble a non-tech stock with its dividend policies, making it one that tech dividend investors should not ignore. At an annual payout of $1.12 per share, its yield has risen to almost 4%. Also, since that dividend has increased for 13 straight years, most income investors likely expect more annual hikes.
Admittedly, Corning may not seem like a tech stock at first glance. Most consumers know it for producing glassware, something not typically associated with technology.
Nonetheless, its strength in glass science has allowed it to build a business in the tech industry. Corning manufactures display glass and the glass used in optical fiber. Moreover, it produces the gorilla glass used for the screens in smartphones and other tech products. Samsung, Sony, and Lenovo are among the companies using Corning's gorilla glass.
Still, sales have slowed in the sluggish economy, leading to $770 million in free cash flow over the last 12 months, which did not fully cover the $977 million in dividend costs for the period.
However, in 2022, its free cash flow of over $1.2 billion financed the $932 million in dividend costs, so the dividend is probably not in danger. As long as consumers demand more devices, Corning's glass products will make it a stable dividend play.
The dividend history of TI goes back decades, but its prospects as a dividend stock improved dramatically when former CEO Rich Templeton took over in 2004 and started raising the payout yearly. After a series of annual increases, Templeton and his successor, Haviv Ilan, have taken the yearly dividend to $5.20 per share, a yield of 3.4%.
Many businesses have supported TI's revenue and dividends in its 93-year history. In today's time, it has developed a leadership position in analog and embedded chips. Such technology is essential as even the most advanced chips need a corresponding analog chip to function.
TI also supports a variety of industries. However, despite the one-time prevalence of its calculators, it mainly caters to business clients. About 65% of its revenue came from the automotive and industrial sectors in 2022.
Unfortunately, the chip industry is in a down cycle. Consequently, free cash flow was just over $1.6 billion over the trailing 12 months, down from $5.9 billion in the previous 12-month period. This has undoubtedly pressured the balance sheet, given the $4.5 billion in dividend costs over the last 12 months.
Still, with nearly $9 billion in liquidity, the semiconductor stock can maintain its payout. With the need for chips growing as they support AI and other functions, TI's free cash flow should not only recover but also support continued annual payout hikes.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Texas Instruments. The Motley Fool recommends Corning and International Business Machines. The Motley Fool has a disclosure policy.