In 2014, the tech sector has once again proven that it’s one of the biggest drivers of returns for investors.
As proof, consider the iShares Dow Jones U.S. Technology ETF IYW, +1.91% or the Technology Select Sector SPDR XLK, +1.88% , both up over 12% year-to-date vs. about 7% gains for the broader S&P 500 index SPX, +2.04% .
As we enter 2015, however, there are concerns that high-earnings multiples and continued softness in global IT spending — particularly in Europe — could weigh on the sector.
That presents an interesting challenge for investors. How can you tap into tech, but with limited risk?
One way is to seek out high-tech companies that pay high dividends, with a reliable income stream supercharging returns or baking in a bit of cash to limit your risk should the market continue to be volatile in the New Year.
So which dividend stocks in tech are worth a look? Here are five to consider:
Digital Realty Trust
• 2014 Performance: +31%
• Market Cap: $8.7 billion
• Dividend Yield: 5.2%
Though Digital Realty Trust Inc. DLR, +1.81% is structured as a real-estate investment trust, it is very much a play on technology. Digital Realty focuses on data-center properties and other high-tech real estate, with tenants ranging from small start-ups looking for flexibility to stodgy government entities just looking for storage.
Like any good REIT, Digital Realty has been increasing dividends ever since it went public in 2004 — from just under 16 cents per quarter at its debut to 83 cents today.
And last quarter, funds from operations totaled $1.21 per diluted share, leaving plenty of wiggle room for both sustained dividends and future increases.
The rise in “big data” should create tremendous demand for storage, and Digital Realty data centers will also be in high demand as a result.
And, by the way, if the economy does start to flag and enterprise spending stays soft, outfits like DLR are in a very good position because they allow for flexibility and short-term cost savings for companies that don’t want to invest a lot of capital in their own operations. Digital Realty is also aggressively growing overseas, as evidenced by a recent partnership with Australia’s government.
With an impressive 5.2% yield, you could do far worse among income investments in any sector right now. And if you want high-tech dividend stocks, DLR is one of the best.
Diebold
• 2014 Performance: +2%
• Market Cap: $2.2 billion
• Dividend Yield: 3.4%
Diebold Inc. DBD, +1.43% isn’t your typical tech stock. The company itself is actually over 150 years old, formed as a safe and locks company, and has evolved into a high-tech provider of security solutions — though still mostly for banks.
Of course, that means the company has had a rough go of it since the Great Recession, thanks to a heavy reliance on financial firms. While the S&P 500 is up over 120% since 2009, DBD is up about 25% in the same period.
But there are signs of life at Diebold after a big executive shakeup in 2013, followed by a multi-year restructuring that was designed to save the company more than $100 million a year — a substantial chunk of change for a firm with only a $2.2 billion market value.
The restructuring appears to be going well, with Diebold seeing third-quarter sales up about 9% and yet another quarterly profit compared with a deep loss in the previous year. There’s still work left, of course, with chief exec Andy Mattes saying that Diebold is in the “walk phase of our ‘crawl, walk, run’ turnaround.” But signs are encouraging.
In addition to cost-cutting efforts, Diebold continues to innovate with things like its “responsive banking concept” that boasts touch screens, remote video capabilities and cardless transactions as a way to marry the best of a brick-and-mortar branch with the scale and convenience of digital tools.
