Dividend Legacies: These 3 Big Tech Stocks Offer High Yields

When investors think of sectors that produce strong dividend income, technology may not be the first one that comes to mind. But technology stocks tend to offer strong profit margins from their goods and services, and that generates high free cash flow. These stocks tend to offer decent growth rates, as well, meaning they afford investors a strong mix of current income with potential price appreciation, as well as higher dividend income over time. In this article, we'll take a look at three technology stocks we like for a favorable mix of growth and income: A Dividend Machine: IBM Our first stock is IBM , an integrated solutions and services provider of IT services and products globally. The company competes in certain cloud software markets, as well as other software and data analysis markets. The company has a large server business that was once the growth driver of the company, but IBM is in the midst of a modernization effort where it focuses more on lucrative services rather than physical products. IBM traces its beginnings back to 1911, so among tech companies, it is very much the elder member of the group. The company should produce about $70 billion in revenue this year, and it trades with a market capitalization north of $100 billion. With the S&P 500 yielding about 1.3% now, IBM's dividend yield of 5.6% is massive by comparison. Investors receive four times the current income of the broader market by owning IBM, so on that measure, it is exemplary. But that's not all that IBM offers, as the payout ratio is just 64% for this year, indicating excellent dividend safety as well. IBM could see a meaningful downturn in earnings and still be able to pay its ample dividend, continuing its streak of 26 consecutive years of raising the payout. On the growth front, we see IBM's dividend as supported not only by the reasonable payout ratio, but by the company's growth outlook. We expect 4% annual growth in the coming years from the company's relatively new push into cloud computing and away from its traditional server business. IBM recently completed the spinoff of its managed infrastructure services business, now called Kyndryl and traded separately with the ticker , which will help in this transition. It also continues to acquire cloud software and consulting companies, with Red Hat being the largest and highest profile acquisition IBM has made in recent years. With these efforts underway, as well as the company's deleveraging push, we see IBM's ability to pay and raise the dividend in the coming years as favorable. The 'Intel' on Good Yields Our next stock is Intel , a designer, manufacturer and distributor of computing offerings and semiconductors, as well as other related products worldwide. The company, like IBM, has been attempting to modernize itself in recent years through acquisitions, mostly, as it pushes away from its more traditional lines of business. Intel was founded in 1968 and like IBM, fell behind newer entrants in recent years to the semiconductor field. But Intel retains its massive size and scale, producing over $73 billion in annual revenue, and sporting a market capitalization near $200 billion. Intel's yield is nowhere near that of IBM, but at 2.8%, it is still double that of the S&P 500. The company's payout ratio is just 26% on this year's earnings, meaning the dividend has exemplary safety ratings. Intel's earnings could take a massive tumble and the company would be able to comfortably afford its payout, which has been raised for seven consecutive years. On dividend safety, Intel receives our highest marks. We also forecast 5% earnings growth in the coming years for Intel, meaning it should have ample financial firepower to continue to raise its payout. We see Intel as having a similar approach to IBM in that it has a sizable legacy business - PCs and servers in Intel's case - as well as higher-margin cloud-based and consulting businesses that it has acquired in recent years. Intel has sizable market share in its legacy businesses, but growth is somewhat challenging. We therefore see the bulk of growth coming from acquisitions such as Mobileye in the future as Intel modernizes over time. Safe With Cisco Our final stock is Cisco , a designer, manufacturer, and distributor of networking and communications products worldwide. The company provides critical infrastructure to move data around the world, including for servers, telecommunications, conferencing, and more. Cisco was founded in 1984, generates about $53 billion in annual revenue, and trades with a $230 billion market capitalization, so it also has longevity and scale on its side. We see Cisco as continuing its long history of growing earnings at a relatively steady rate, and we forecast 6% annual earnings-per-share growth in the coming years. Cisco has long been a company that buys back a lot of its own stock, and that should be a driver moving forward as well. But we also expect Cisco's dominant market share in its core businesses to continue, producing steady organic growth as the world continues to see insatiable demand for moving data. Cisco has a current yield of 2.6%, which is double that of the broader market at the moment. In addition, its payout ratio is less than 50% of earnings for this year, so like Intel, Cisco's dividend safety is outstanding. Cisco sports an 11-year streak of dividend increases, and we see many more years of increases on the horizon given the combination of its relatively steady earnings growth, and low payout ratio. While technology stocks may not be the first that come to mind for income investors, ignoring the sector can see investors miss out on terrific opportunities in names that have very safe dividends, and strong yields to accompany those safe payouts. For investors focused on income, or compounding wealth through dividend reinvestment, stocks like the three we've identified can produce desirable results for long-term investors. IBM, Intel, and Cisco all have dividend yields that are at least double that of the S&P 500, but have bright growth outlooks as well, and we believe many years of dividend increases ahead.

Dividend Legacies: These 3 Big Tech Stocks Offer High Yields

IBM, Intel, and Cisco have bright growth outlooks and should offer many years of dividend increases ahead.

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