Tech Sector Should Hike Dividends

The tech sector has matured over the last decade, but tech dividend payouts remain stubbornly juvenile

Josh Peters, CFA 31 October, 2012 | 8:00AM
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Dividends are just a bribe to get you interested in slow growing companies who can’t be bothered to reinvest their earnings in something useful.”
—Andy Kessler, “I Still Hate Dividends, Professor Siegel,” 7 January 2008

However erroneous, the kind of sentiment expressed in the above quote has long been standard fare for growth- and momentum-oriented investors, who often ply their trade in the land of information technology. Dividends? Dividends? Those are for boring old food companies and electric utilities. Tech is about growth!

Of course, the bottom line for any investor—or any company—is not merely the rate of growth, but the total return realised by shareholders. In the aftermath of the late 1990s tech stock bubble, the industry’s giants entered a period of increasing maturity, with cyclical tendencies exposed and falling rates of revenue growth. Many retained highly profitable, well-established franchises capable of churning out incredible free cash flows. But like overgrown teenagers—as physically mature as they were likely to get—their intellectual maturity was somewhat lacking.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Apple Inc156.81 USD0.00Rating
Cisco Systems Inc54.67 USD0.00Rating
General Electric Co97.84 USD0.00Rating
Intel Corp48.78 USD0.00Rating
Microsoft Corp329.68 USD0.00Rating
Salesforce.com Inc284.21 USD0.00Rating

About Author

Josh Peters, CFA  is the editor of Morningstar DividendInvestor, a monthly newsletter available in the US, and is author of The Ultimate Dividend Playbook.