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Four of the Best Tech Dividend Stocks to Invest In Right Now

By , Associate Editor, Money Morning •

From the mid-1980s through 2000, stocks like Microsoft Corp. (Nasdaq: MSFT) and Cisco Systems Inc. (Nasdaq: CSCO) were growth powerhouses.

In fact, if you had invested $10,000 in Microsoft in 1986 and the same amount in Cisco in 1990, you could have turned your $20,000 into about $8 million today.

With growth like that, the prospect of earning a simple dividend seemed nothing more than a rounding error.

But what a difference a decade, a financial crisis, and a marked slowdown in innovation and capital spending can make. In today's tech sector,big-cap tech companies are no longer synonymous with explosive growth.

In fact, today, one of their biggest selling points is the size of the dividend tech dividend stocks now offer. The majority of the bigger players all pay dividends of about 3% - more than Treasuries, and about 50% more than the 1.9% average dividends paid by the S&P 500.

Of course, the case fordividends is familiar by now.

Dividends add stability and give investors an incentive to buy the stock once growth slows.  Cisco, for instance, has slowed from 47% annual sales growth during the late-90s web boom to 5.3% so far this fiscal year.  

This shift away from growth makes Cisco's 3.2% yield rather attractive to yield-starved investors.  And Cisco is just one of the many growth companies that have "matured."

The Best Tech Dividend Stocks

In fact, according to a recent report from Moody's Investors Service, Tech stocks officially became the biggest dividend-paying sector in the S&P 500 last August after Apple began paying dividends.

And last month, the maker of iPhones and iPads increased its dividend 15%, meaning it will pay out more than $11 billion in 2013, the most of any company in the U.S. non-financial sector, Moody's says.

Overall, the Moody's report said, tech dividend payments will climb by 35% in 2013 to a record $44.4 billion.

And investors can expect the outlook to remain bright for tech dividend stocks even if the economy takes a turn for the worse.

"Technology companies are well-positioned to support dividend payments in the event of a downturn in the economy," Moody's stated in the report. "Stable cash flow and strong liquidity will enable dividend-paying technology companies to weather potential financial or geopolitical shocks to the global economy."

The Moody's report said big players will comprise more than half the payouts for tech dividend stocks, with Apple, Microsoft and Intel Corp. accounting for 54% of the payouts.  Meanwhile, the top-10 dividend-paying U.S. tech companies will account for 84% of the tech sector's dividends this year, Moody's said.

"We believe the increasing number of dividend-paying tech companies reflects the strength of these firms' business models, management confidence in cash flow-generation prospects and, in some cases, pressure to return capital to shareholders," Moody's Senior Vice President Richard Lane said in the report.

That's this year. But Moody's also noted tech's dividend payments averaged only 20% of discretionary cash flow, compared with 50% for non-tech companies.

That means there are big companies that can pay more and are likely to face pressure to increase their dividends in the future.

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Four Tech Dividend Stocks to Invest in Now

For now, here are four of the best tech dividend stocks to invest in right now:

  • Intel Corp. (Nasdaq: INTC) pays a dividend yield of 3.74%. The computer chip maker reported net income of $11.005 billion last year and had $18.162 in cash and short-term investments at the end of the most recent quarter. For Intel, the future looks bright: Analysts expect earnings to increase an average of 11% in each of the next five years.
  • International Business Machines Corp. (NYSE: IBM) pays a dividend yield of 1.84%. IBM reported net income of $16.604 billion last year and had $11.129 billion in cash and short-term investments at the end of the most recent quarter. The good news for ivestors is that there is room to raise the dividend since analysts expect earnings to climb an average of about 10.5% each of the next five years.
  • Cisco Systems (Nasdaq: CSCO) pays a dividend yield of 2.89%. The company reported $8.041 billion in net income last year and had $48.716 billion in cash and short-term investments at the end of the most recent quarter. Analysts expect Cisco's earnings to increase an average of about 8% each of the next five years.
  • Oracle Corp's (Nasdaq: ORCL) 0.71% yield is still well below what it can afford. The software giant generated $13.7 billion in operating cash flow in 2012 and spent less than $650 million on capital expenditures. Even its $4.7 billion in acquisitions barely dented their $33 billion cash hoard. Boosting the dividend to 3% would cost a little more than $3.6 billion yearly which is why Oracle investor can likely expect a higher dividend soon.

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