In an uncertain economic climate, buying dividend stocks stands out as a preferred investment strategy for its blend of income and stability. They offer a reliable cash flow with yields typically in the 2% to 4% range, cushioning against market volatility.
Unlike growth stocks, which rely on capital appreciation, dividend payers, often mature firms with strong balance sheets, provide tangible returns even when prices stagnate. Data from Hartford Funds and Ned Davis Research shows stocks that initiate a dividend and then raise the payout, outperformed all other stocks and the S&P 500, and do so with lower volatility.
Within this strategy, dividend tech stocks offer a unique appeal. They combine tech’s growth potential, averaging 10% annual returns, with modest dividends, signaling financial health. In a recession, their innovation and cash reserves ensure resilience, making them a smart hybrid play.
The two dividend tech stocks below have been discounted by the market and represent excellent investments for growth and income.
Google parent Alphabet (GOOG)(GOOGL) stands out as a compelling dividend tech stock, blending modest income with robust growth potential. After initiating a $0.20 quarterly dividend in April 2024, and currently yielding 0.3%, Alphabet signaled it has attained financial maturity while retaining its innovation edge.
It might not be as deeply discounted as it was a year ago, or even last September, but Alphabet's recent fourth-quarter earnings report showcases why there is still a long runway of growth ahead.
Revenue jumped 15% year-over-year to $88.3 billion, driven by AI-powered ad optimization and a 35% surge in Google Cloud profits to $12.1 billion. GOOG stock trades at just 17 times earnings estimates, well below its five-year average of 25 and reflecting market overreaction to antitrust scrutiny and AI competition fears.
Developments like Google's Gemini AI model, launched in late 2024, position Alphabet to have an outsized role in generative AI that can enhance its search, cloud, and YouTube offerings.
Of course, regulatory pressures remain a headwind. While the Justice Dept. just dropped its proposal to force Alphabet to sell its investments in AI companies, including Anthropic, it still faces calls to sell its Chrome browser as well as charges it has an illegal monopoly over search.
However, Alphabet’s $100 billion cash hoard offers resilience and buyback firepower (it authorized a $70 billion share repurchase program last year). Down 15% off its early February peak, GOOG stock is undervalued for a firm with 13% projected long-term earnings growth. The dividend sweetens the deal, making Alphabet a rare tech bargain with upside.
Microsoft (MSFT) emerges as the second dividend tech stock to buy, offering a discounted entry point with strong growth prospects. If you look at all of the products Microsoft offers, which happen to almost all be growing at double-digit rates, sometimes as high as 30% or more, you can think of MSFT stock as a tech exchange-traded fund in and of itself.
Cloud revenue was up 21% in the fourth quarter, Azure revenue was 31% higher, Dynamics 365 rose 18%, and even Bing revenue was up 20%.
Trading at $393 and down 16% from its July 2024 peak of $468 per share, the stock’s forward price-to-earnings ratio of 26 sits below its five-year average of 34, suggesting undervaluation amid broader market jitters. It also pays a quarterly dividend of $0.83 per share, which currently yields 0.8%, but it has grown the payout 10% annually for at least the past decade, backed by a $243 billion cash pile, which signals stability for income seekers.
Recent developments only serve to amplify its appeal. Microsoft's fiscal second quarter earnings showed revenue rose 16% to $65.6 billion, fueled by the surge in Azure cloud revenue. The $13 billion OpenAI partnership, bolstered by ChatGPT’s integration into Teams and Copilot, positions Microsoft as an AI leader, with analysts projecting 14% long-term EPS growth.
Microsoft also announced a $60 billion buyback project in September further supporting shareholder value. Despite a brief Xbox sales dip, some 5% in Q2, Azure’s 50%+ AI-driven growth and Office 365’s sticky enterprise base offset risks.
With cloud and AI tailwinds outweighing macro concerns, Microsoft offers a unique blend of dividend reliability and tech upside at a discount.
