NEW YORK (TheStreet) -- With Dell becoming the latest tech giant to perform an about-turn in its dividend strategy, tech sector dividends are once again in the investor spotlight. The no. 2 PC maker may have grabbed most of the headlines when it announced plans for a quarterly payment of 8 cents per share last week, but experts say that Microsoft, Intel and Cypress Semiconductor are the key tech dividend stocks.
Ratings agency Moody's cites Microsoft as the tech dividend leader after making more than $5.7 billion in dividend payments in 2011, although Apple is expected to surpass the software giant after reinstating its dividend following a 17-year hiatus. The iPhone maker plans to institute its quarterly payment sometime in its fiscal fourth quarter, which begins on July 1, 2012.
Dell and Apple, of course, are just the two latest tech firms rethinking their dividends. Cisco, initiated its first-ever cash dividend in 2011, as did Lexmark and Intuit. Hard drive maker Seagate also reinstated its dividend in 2011.
Doug Freedman, an analyst at RBC Capital Markets, says that the popularity of dividends reflects the growing maturity of many U.S. tech companies. "The growth in their business is not consuming all of their cash now," he told TheStreet. "In the old days, they were growing so fast that they needed every dollar they could get their hands on to grow their business."
The trend is seen as still gaining momentum as well.
"Dividend payments by rated U.S. technology companies will rise again in 2012," explained Moody's analyst Richard Lane in a recent note. Moody's expects that these companies' dividend payments will approach $26 billion in 2012, up 14.3% from 2011.
In addition to traditional tech stocks, investors looking for strong dividend plays should also consider telecom giants AT&T and Verizon, which both offer impressive yields.
Read on for more details on tech's top 3 dividend stocks:
Market Cap: $250.22 Billion
Share Price: $29.78
The software giant jumped into dividends with an annual payment in 2003, and has subsequently earned plaudits for its quarterly returns to shareholders. Moody's ranks Microsoft no. 1 in its list of top-rated technology common dividends, ahead of Intel, IBM and Cisco, citing its $5.7 billion return in 2011, a figure which is expected to reach $6.7 billion next year.
Microsoft's dividend yield, which reflects its dividend payment in relation to its share price, is currently 2.69%. While this is not the largest yield in Silicon Valley, experts say that the tech giant's dividend strategy is still worthy of investor attention.
"It's a dividend yield of roughly 3%," noted Daniel Ives, an analyst at FBR Capital Markets, in an email to TheStreet, adding that Microsoft has done a good job with its cash strategy over the years.
The Redmond, Wash.-based tech giant hiked its quarterly dividend by 25% last year, and now makes a quarterly payment of 20 cents a share. The company's dividend has grown by an impressive 150% since it made its first quarterly payment of 8 cents a share in 2004.
The company's broader strategy also looks positive. TheStreet ratings gives Microsoft an A grade and good things are expected from the software maker, particularly with the launch of its eagerly-anticipated Windows 8 operating system later this year.
"The key to the stock remains the success of Windows 8 product cycle, which could be a nice catalyst to top-line growth," noted FBR Capital Markets' Ives. "Although the jury is still out of how strong this upgrade cycle will ultimately be in the market."
Overall, though, investors are getting behind Microsoft after an underwhelming 2011, pushing its shares up more than 14% this year. Rival Google, a famous dividend non-payer, has seen its shares slip more than 11% over the same period.
The software giant is also getting plenty of love on Wall Street. Of the 27 analysts surveyed by TheStreet Ratings, 19 rated the company either a 'moderate buy' or 'strong' buy.
"Microsoft's valuation and risk/reward is very attractive," added Nomura Securities analyst Rick Sherlund, in a recent note. "We are bullish on calendar year 2013, anticipating a rich year of strategic and high-margin products in Microsoft's most profitable divisions."
Market cap: $138.13 billion
Share price: $27.45
The no. 1 chip maker earns its place on this list by paying out one of the most generous dividends in Silicon Valley.
"On the purer tech side, Intel's a good choice," noted Charles King, principal analyst at Pund-IT, in an email to TheStreet, pointing to the company's impressive dividend yield of 3.06%. For comparison, the average dividend yield in the S&P is 2.04%.
Last month, the Santa Clara, Calif.-based firm raised its quarterly dividend by 7% to 22.5 cents a share, Intel's third dividend increase in 18 months. Since instituting its share buyback program in 1990 and its dividend program in 1992, Intel has returned around $112 billion to shareholders.
Clearly, Intel is keen to drive shareholder value through dividends. Moody's analyst Lane notes that while most of tech's main dividend payers have kept their payout ratio at about 20% of discretionary cash flow, Intel's dividend payout ratio exceeds 40%.
TheStreet ratings gives the semiconductor specialist an A grade and a 'buy' rating, citing its good long-term growth across cash flow, revenue and earnings per share. Intel's impressive return on capital also spells good news for investors.
Undoubtedly a best-of-breed stock, Intel's domination of the semiconductor space looks set to continue. The chip maker controlled a record 16.5% of the semi market in 2011, according to tech research firm Gartner, its twentieth consecutive year as the share leader.
Experts also predict future revenue boosts for the chip giant.
"They should be able to capitalize on a few forthcoming catalysts," explained Chris Stuart, research manager for TheStreet Ratings. "One is their Ultrabook initiative, which is their answer to Apple's MacBook Air, and also Microsoft's Windows 8."
Intel says that Ultrabooks, which are super-skinny laptops built around its processors, are already gaining momentum, predicting that the technology will breathe new life into the moribund PC market.
The company's new Ivy Bridge PC chip and its recently-launched Romley server processor are also expected to drive growth in the second half of 2012 and beyond. Consumer tech giant Apple, for example, is using Ivy Bridge within the new MacBook Prothat it launched in a blaze of publicity last week.
Intel shares have gained 13.2% this year, outpacing the Nasdaq's gain of 10.74%.
Market Cap: $2.06 Billion
Share Price: $13.54
Cypress Semiconductor is worthy of investors' attention, because, as RBC Capital's Freedman, notes, not all dividends are created equal. "Cypress Semi has no U.S. profits, so its dividend is classified as a return of capital, which should receive more favorable tax treatment than a distribution of profit," he told TheStreet.
Thanks to its cost structure, the semiconductor specialist makes an operating loss in the United States. This means that, unlike many companies, its quarterly payments are not treated as "qualified dividends," which would be subject to a dividend tax rate of up to 15%.
Cypress says that a final decision on the tax treatment of its recent quarterly dividends will be made after the company's 2012 fiscal year-end.
Even without the tax benefits, though, Cypress Semiconductor's payment still compares favorably to other tech sector dividends. The San Jose, Calif.-based firm paid its first dividend of 9 cents a share in July 2011, increasing its quarterly payment to 11 cents in March this year. The dividend yields an impressive 3.25% at the company's current share price.
Rival Xilinx has a yield of 2.7%, while Integrated Device Technology, another competitor, does not pay a dividend.
In addition to its dividend, Cypress Semiconductor has also been generous with share buybacks, authorizing a $400 million repurchase program in September 2011, which followed a $600 million buyback authorization a year earlier.
Cypress Semiconductor's valuation should also appeal to investors. The company's stock recently hit a 52-week low, and is down almost 20% since the start of this year.
Lowered first-quarter expectations have weighed heavily on the company's stock, although this could work in investors' favor, as Cypress looks to rebound in the second half of the year.
"We believe the company provides attractive risk-reward at current levels," noted Sterne Agee analyst Vijay Rakesh recently, citing its strengths in the touchscreen tablet and smartphone markets. "Cypress Semiconductor has also been aggressively returning shareholder value with a more than 3% dividend and a more than 20% buyback over the last four quarters," he added.
--Written by James Rogers in New York.Follow @jamesjrogers
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