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3 Buy-Rated Tech Stocks with Increasing Dividend Payouts

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Tech stocks have continued to trade favorably in the new year, delivering outsized gains on the back of positive sentiment. Expectations of rate cuts and easing inflation have provided tailwinds, with the artificial intelligence (AI) theme also continuing to inject positivity.

Income investors are typically less attracted to the tech sector, as these companies frequently use cash to fuel growth and spur innovation. Still, there’s a wide variety out there that reward their shareholders nicely. 

Three technology stocks – ASML Holding (ASML - Free Report) , Microsoft (MSFT - Free Report) , and NetApp (NTAP - Free Report) – all pay their shareholders. In addition, all three have seen their earnings outlooks shift positively over the last several months, reflecting optimism among analysts.

For those seeking a passive income stream paired with technology exposure, let’s take a closer look at each.

Microsoft

Microsoft, a current Zacks Rank #2 (Buy), has helped lead the market’s strong performance, holding a spot in the beloved ‘Magnificent 7’ group. The company’s current year outlook has shifted higher, with the $11.14 Zacks Consensus EPS Estimate nearly 6% higher over the last year and reflecting 14% year-over-year growth.

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Image Source: Zacks Investment Research

The technology titan has grown its payout nicely over the years, currently carrying a 10% five-year annualized dividend growth rate. Shares currently yield 0.7% annually, a hair above the Zacks Computer and Technology sector average of 0.6%.

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Image Source: Zacks Investment Research

Microsoft’s cash-generating abilities help secure the payout. The company generated a sizable $59.5 billion in free cash flow in FY23, with the trailing twelve-month figure totaling an equally impressive $63.3 billion.

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Image Source: Zacks Investment Research

ASML Holding

ASML is a world leader in manufacturing advanced technology systems for the semiconductor industry. The company has seen modest positive earnings estimate revisions across nearly all timeframes, helping land it into a Zacks Rank #2 (Buy).

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Image Source: Zacks Investment Research

ASML’s annual dividend currently yields 0.7% paired with a sustainable payout ratio sitting at 26% of its earnings. The company aims to consistently grow its payout over time, fully reflected by its 33% five-year annualized dividend growth rate.

The company has enjoyed significant top line expansion over the last several years, posting double-digit year-over-year revenue growth rates in each of its last four quarters. ASML generated $7.3 billion in sales throughout its latest quarter, 25% higher than the year-ago period.

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Image Source: Zacks Investment Research

Keep an eye out for the company’s next quarterly release scheduled for this Wednesday, January 24th, before the market open. Consensus expectations for the print presently suggest 9% earnings growth on nearly 12% higher sales.

NetApp

NetApp, a current Zacks Rank #2 (Buy), provides enterprise storage as well as data management software and hardware products and services. Analysts have taken their expectations well higher over the last several months.

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Image Source: Zacks Investment Research

The company’s latest quarterly release was notably strong, with NTAP posting revenue above the midpoint of prior guidance and delivering record gross and operating margins. NetApp continues to benefit from snowballing demand among data infrastructure.

Shares yield a solid 2.3% annually, nowhere near the Zacks sector average of 0.6%.

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Image Source: Zacks Investment Research

Shares aren’t rich from a valuation perspective given its forecasted growth, with earnings forecasted to climb 10% in its current fiscal year. Shares are currently trading at a 14.3X forward earnings multiple, nicely beneath the 16.7X five-year median and highs of 23.7X.

The stock carries a Style Score of ‘C’ for Value.

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Image Source: Zacks Investment Research

Bottom Line

Who doesn’t love dividends? They provide a passive income stream, allow for maximum returns through dividend reinvestment, and provide a shield against drawdowns in other positions.

And who doesn’t love technology stocks? Their momentum is impossible hard to ignore, with many looking for exposure.

For those seeking dividend-paying technology stocks, all three above – ASML Holding (ASML - Free Report) , Microsoft (MSFT - Free Report) , and NetApp (NTAP - Free Report) – could be great considerations.


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