What are we looking for?
Forget Snap. We're looking for tech stocks with strong growth – and sustainable dividends.
The screen
The buzz surrounding the Snap IPO was as much about the company's big losses as it was its popular Snapchat messaging app.
Snap's share price may yet move higher if momentum traders load up on the next upswing. But we think a better approach for investors is "Internet tech" stocks – in cloud computing, cybersecurity and so on – that offer growth and dividend income.
Starting with our list of dividend-paying tech companies, we singled out those with above-average growth – and highly sustainable dividends.
Our TSI Dividend Sustainability Rating System awards points to a stock based on eight key factors:
- One point for a five-year record of dividends – two points for more than five years of continuous payments;
- Two points if the company has raised the payment in the past five years;
- One point for management’s public commitment to dividends;
- One point for operating in non-cyclical industries. Profits at businesses in cyclical industries, such as oil and mining, tend to move up and down with the economy. Sharply lower earnings could prompt a company to cut its dividend to conserve cash;
- One point for limited exposure to foreign currency exchange rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point if the company is a leader in its industry.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability rating. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Dividend Advisor is the latest addition to the family. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six tech stocks without hype, but with that special combination of growth and income. Microsoft, for example, builds on its leading position in software and the cloud. Even with high research spending, it regularly raises its dividend, and its payout remains highly sustainable.
While Symantec's average dividend sustainability is lower – relatively speaking – than others on the list, it stands out among other average stocks for its growth prospects.
All six of our top stocks appear in the accompanying table.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.