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Last week, I told you that McDonald’s is a great example of a company with strong fundamentals and continued dividend strength. Yesterday, we saw more proof: The company said global same-store sales gained 8.2%. And even as most other restaurants posted weak U.S. results, McDonald’s watched same-store sales gain 5.3% here in the States.
That’s great news for anyone holding the shares!
Now today, I want to talk about some more companies that are bastions of dividends. And the place where I’m finding them may surprise you …
Tech Stocks Keep Jumping to the
Top of My Dividend Lists!
Remember that table from “Yes, You Can Still Find Solid, Reliable, Fat Dividends?” It showed some of the companies that changed their dividend policies in September. Just in case you missed it, let me show it to you again:
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Big Dividend Actions Last Month …
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|||
|
Company/Ticker
|
Action
|
Change
|
Sector
|
|
Amer Intl Group/AIG
|
Suspension
|
-100%
|
Financials
|
|
Federal Home Loan/FRE
|
Suspension
|
-100%
|
Financials
|
|
Federal Natl Mtge/FNM
|
Suspension
|
-100%
|
Financials
|
|
Lehman Br Holdings/LEH
|
Suspension
|
-100%
|
Financials
|
|
Wachovia Corp/WB
|
Suspension
|
-100%
|
Financials
|
|
Washington Mutual/WM
|
Suspension
|
-100%
|
Financials
|
|
Comerica Inc/CMA
|
Decrease
|
-50%
|
Financials
|
|
Campbell Soup/CPB
|
Increase
|
14%
|
Staples
|
|
Lockheed Martin/LMT
|
Increase
|
36%
|
Industrials
|
|
McDonald’s Corp/MCD
|
Increase
|
33%
|
Discretionary
|
|
Microsoft Corp/MSFT
|
Increase
|
18%
|
Technology
|
|
Natl Semiconductor/NSM
|
Increase
|
33%
|
Technology
|
|
Texas Instruments/TXN
|
Increase
|
10%
|
Technology
|
|
Tyco Intl/TYC
|
Increase
|
33%
|
Industrials
|
|
Verizon Communications/VZ
|
Increase
|
7%
|
Telecom
|
|
Source: Standard & Poor’s
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|||
One thing really jumps out at me — of the eight companies that increased their dividends, three are from the technology sector. And another — Verizon — is very closely related to tech, too.
Look the size of the increases, too. Microsoft boosted its payment by a solid 18%, and National Semi hiked a whopping 33%! Those aren’t token increases … they demonstrate solid financial wherewithal and loyalty to shareholders.
But how are tech companies boosting their dividends right now? Aren’t they the kind of firms most hurt by economic downturns?
On one hand, the answer is, “yes” — tech companies do feel the bite of weaker economic conditions. Many of their products are discretionary items themselves. Take software, for example. You might delay upgrading to the latest version of Windows right away. Ditto for video game systems like Xbox 360.
It’s the same thing in the case of semiconductors. Many of these tiny circuits end up in discretionary items like cellphones and televisions.
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So demand for tech products is clearly cyclical. Always has been. Even corporate customers, which make up a large percentage of tech buys, can — and will — wait to upgrade their systems when business is on the decline.
Despite the cyclicality, America’s best tech companies still have big brand names. Their sizable businesses are difficult to compete with. Cash flows remain strong.
Plus, these companies have shown rigid fiscal responsibility, especially after the tech bubble burst. They have clearly survived tough times before, and are well aware of the risk of not being prepared for future downturns. As a result, these companies boast strong balance sheets.
Maybe that’s why a bunch of tech firms also turned up in another list I published in the January 2008 issue of Dividend Superstars. At the time, I was looking for dividend stocks that met five criteria Warren Buffett might use, including:
- A healthy return on equity
- Solid profit margin
- Low debt
- Great cash flow
- Favorable valuations
Take a look at the names I came up with:
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Name/Ticker
|
ROE
|
Profit Margin
|
Debt/Equity
|
Free Cash Flow (Mil.)
|
P/E
|
|
Aspen Insurance Holidngs/AHL
|
20.20 |
24.04
|
9.13
|
962.40
|
6.16
|
|
Axis Capital Holdings/AXS
|
26.01
|
34.69
|
10.10
|
1623.62
|
6.47
|
|
Endurance Specialty Holdings/ENH
|
22.07
|
28.50
|
17.71
|
545.65
|
5.08
|
|
Federated Investors/FII
|
38.15
|
20.40
|
14.04
|
343.99
|
19.70
|
|
Garmin Ltd./GRMN
|
39.19
|
26.56
|
0.03
|
492.31
|
18.65
|
|
Microchip Technology/MCHP
|
17.77
|
23.46
|
0.00
|
345.70
|
21.04
|
|
Microsoft/MSFT
|
35.84
|
31.17
|
0.00
|
17250.00
|
20.90
|
|
Occidental Petroleum/OXY
|
24.27
|
27.35
|
8.65
|
3254.00
|
15.17
|
|
Paychex/PAYX
|
31.07
|
28.97
|
0.00
|
631.81
|
23.04
|
|
Qualcomm Inc./QCOM
|
19.92
|
49.05
|
0.00
|
2993.00
|
20.28
|
|
RenaissanceRE holdings/RNR
|
29.53
|
31.70
|
10.52
|
879.31
|
5.69
|
|
RLI Corp./RLI
|
20.21
|
38.86
|
18.61
|
162.63
|
8.13
|
|
T. Rowe Price Group/TROW
|
24.18
|
29.62
|
0.00
|
627.99
|
21.81
|
|
Terra Nitrogen/TNH
|
54.79
|
34.26
|
0.00
|
168.72
|
17.32
|
|
Texas Instruments/TXN
|
30.84
|
21.19
|
0.00
|
3109.00
|
17.56
|
|
Tidewater Inc./TDW
|
19.86
|
27.10
|
18.50
|
113.86
|
8.33
|
|
Data as of January 2008
|
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I’ve highlighted all the tech sector names. As you can see, two are the same companies that boosted their dividends last month. Coincidence? I think not!
Remember, You Can Find Dividends in Unlikely Places;
That’s Especially True in these Rapidly Changing Markets
It’s ironic that as the housing bubble bursts and takes out a whole host of once-solid financial companies, tech firms are emerging as solvent, well-insulated income investments. But based on the information I’m seeing, that’s precisely what’s happening.
As investors, we need to recognize that the landscape is continually shifting. New leaders can emerge, and an area once barren of dividends, may quickly become an income oasis.
The mainstream media is too busy to notice, of course. Whenever they talk about technology stocks it’s only to compare one bubble to another.
Sure, technology was all about unsustainable growth in 2000. But the surviving tech companies have already been through tough times. They’ve lost investor confidence before. More than most firms, they need to prove that their business models are legitimate and profitable. And as far as I’m concerned, nothing can do that better than steadily rising dividend payments.
While I’m not saying this is the time to plow in and buy dividend tech stocks haphazardly, there are a few that I’m watching closely. They are still very exposed to market downdrafts because of their cyclicality, too. But I suggest you put a few of these on your radar screen. We may see good entry points in the near future.
Best wishes,
Nilus
P.S. As soon as I see buy signals in these dividend tech stocks, I’ll be recommending them to my Dividend Superstars subscribers. If you’re not yet a member, sign up now for just $39. You’ll get 12 monthly issues, all my buy and sell signals, and a whole bunch of special reports. Click here for all the details.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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