Nearly three times as many U.S. technology companies raised or initiated dividends in this year’s third quarter compared to those that cut or suspended dividends—an event financial advisors may want to consider when rebalancing their technology allocation, Todd Rosenbluth, CFRA’s head of ETF and mutual fund research, said today during a webinar he hosted on thematic investing and opportunities presented by re-opening the economy.
These dividends marked a “significant improvement” from the second quarter when twice as many companies took a negative dividend action, Rosenbluth said.
While the S&P 500 Information Technology sector has a relatively low yield, stocks such as Accenture, Microsoft and Texas Instruments were some of September’s dividend growers.
“CFRA believes dividend growth from information technology will continue in 2021, which is why we think it is important to understand what stocks are inside dividend ETFs and mutual funds,” Rosenbluth said.
While 31 S&P 500 Index constituents suspended their dividends in this year’s second quarter, just one did so in the third quarter. Meanwhile, eight S&P 500 Dividend Aristocrats—companies that have hiked their dividends for at least 25 years—boosted their cash payments in the third quarter. That includes Dover Corp and Lowe’s, Rosenbluth noted.
Regarding funds, Rosenbluth pointed to the index-based Vanguard Dividend Appreciation ETF (VIG) and actively managed T Rowe Price Dividend Growth (PRDGX) mutual fund as good examples of products that provide exposure to dividend-paying technology stocks.
He said information technology sported a below-average 1.1% dividend yield at the end of the third quarter, and 63% of the sector’s constituents paid a regular dividend. The tech sector is underweighted in the S&P 500 Dividend Aristocrats Index at just 1.5% of assets, but many dividend ETFs and mutual funds own companies such as Accenture, Apple, Microsoft, Texas Instruments and Visa that provide stable income. Accenture, Microsoft and Texas Instruments boosted dividends in September.
Rosenbluth noted the WisdomTree Quality Dividend Growth ETF (WTDGI) owns dividend-paying companies with strong return on-equity and return-on-asset metrics, as well as having favorable earnings growth expectations. Apple and Microsoft are that ETF’s two largest positions.
Meanwhile, the Vanguard Dividend Appreciation ETF holds companies such as Microsoft and Visa that have raised their dividends for ten or more years.
Rosenbluth said the ProShares S&P Technology Dividend Aristocrats ETF (TDV) is another strong option that is dedicated to just dividend growers in the information technology sector. This fund holds Apple, Accenture, Microsoft, Texas Instruments and Visa, as well as Broadcom and Nvidia. All of these companies have raised dividends for seven or more consecutive years.