For the longest time, tech stocks and dividends were considered to be a world apart. Although Microsoft paid dividends from 2003 onwards, it was alone among tech stocks in that regard until recently. At some point, Apple started paying a dividend; it was followed by Alphabet (NASDAQ: GOOG) and Meta Platforms a few years later. Today, five out of seven “Magnificent Seven” stocks pay dividends!
In this article, I’ll explore two of the tech industry’s dividend darlings — including a newly minted Big Tech dividend stock and a smaller Canadian company that has been paying dividends since 2013.
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Alphabet, better known as Google, pays a dividend of $0.20 per quarter ($0.80 per year). At today’s stock price of $180, the yield is only 0.44%, but the dividend could rise over time. If it does, then investors might start getting an appreciable amount of income by holding Alphabet stock.
Alphabet was the latest comer to the dividend party of all the major tech companies. It began paying a dividend a few months after Meta Platforms initiated its dividend. Many people were surprised to see Alphabet declare a dividend, as the company was seen as wanting to avoid looking like an “aging” company (mature companies paid the most dividends historically, so paying them put a company’s reputation for innovation at risk).
Well, this year, the company started paying dividends anyway. It’s not clear why it did so; the fact that META had begun paying them may have made Alphabet management less worried that paying a dividend would diminish its “innovator” image. At any rate, GOOG has only a 3% payout ratio, so the small dividend will likely be paid without issues for the foreseeable future and may even increase a little bit each year.
OpenText
OpenText (TSX: OTEX) is a Canadian text analysis company that offers a content management system (CMS) and related services. It uses artificial intelligence (AI) extensively in its products. For example, its “AI Cloud” product includes tools that can summarize and extract important insights from documents. The inclusion of AI in its product at a time when AI was all the rage seems to have ramped up OpenText Corp’s growth. The company’s revenue increased 51% in the last 12 months after growing somewhat slowly in prior years.
OpenText has a pretty high yield for a tech stock. It pays a dividend of $0.25 per quarter or $1 per year, which provides a 3.37% yield at today’s stock price of $29.69. The company has raised its dividend at a rate of 12% per year over the last 10 years, which is a pretty good dividend growth rate. If it continues, then investors buying today may enjoy higher yields in the future.
OpenText sells enterprise software that most investors do not use or have access to. This makes the stock a bit difficult to analyze: it’s not easy to get direct experience with its products. The company’s revenue figures look good, but its earnings have been declining. I am less enthusiastic about this stock overall than I am about Alphabet, but it does have a higher yield than that stock. It might make sense for income-oriented investors.
Foolish takeaway: Tech dividends
These days, tech and dividends are often found together in the same stocks. The big U.S. tech giants mostly pay dividends now. Small “innovator” companies do less frequently. There are plenty of dividend opportunities in tech these days. If you’re seeking them, you’ll find what you’re looking for.
