Technology is the alchemy of the stock market. It is where companies turn worthless silicon into incredible new and expensive gizmos and devices. And it is where other companies conjure up applications and software out of the thin air of their employees’ minds.
So, it’s no wonder investors love to find the latest companies as soon as they can to invest in that sort of alchemy.
This magic shows in the performance of the technology sector. If you look at the S&P 500 Information Technology Sector Index over the past 10 years, it has generated a total return of 381.5% as compared to the general S&P 500’s return of 238.1%.
But there are many challenges when it comes to investing in technology. Not all ideas are viable. And even when an idea is viable, the company behind it must perform profitably — at least eventually. And along the way, tech companies tend to share little of their wealth in dividend distributions to shareholders. Many tend to burn cash rather than piling it up.
This shows up in the average dividend of the S&P 500’s Information Technology Sector Index which is a paltry 1.4% compared to the S&P 500’s 1.9%.
So, what about finding technology companies that are bringing new products to eager markets and that are profitable enough to pay better dividends? These companies do exist, and their shareholders are profiting from them with growth and income. Here are five from varied technology markets that are profitable and pay well.
Tech Stocks to Buy: Hercules Capital (HTGC)
Dividend Yield: 9.5%
Hercules Capital (NYSE:HTGC) is based in Palo Alto, California, which is home to many of the tech companies of the past and future. The company is set up as a business development company and really operates much like a merchant bank. It searches out technology companies from varied sectors and provides financing for development. And in turn, it also takes equity stakes via warrants which provide additional payouts when the companies come to the public market or are sold to other larger companies.
It has hundreds of companies in its portfolio and has had a series of major bold-faced names in its history of investments. And the returns to shareholders have been impressive. Over the past five years alone, shares have generated a return of 53%
And this return comes with a nice dividend currently yielding 9.5%. The company has been increasing revenues by 8.8% and has an impressive net interest margin (the difference in funding costs to investment earnings) at 8.9%. This drives an impressive return on equity of 12.4%.
Yet the stock is still a bargain at only 1.3 times its book value. It makes for a great buy in a taxable account.
Dividend Yield: 1.5%
I know that Microsoft (NASDAQ:MSFT) isn’t an unknown company nor an undiscovered stock. Yet it is a transforming company in the technology space. It has gone from a company that relied on unit sales of software packages and other products to services and products that are sold by subscription or on contract for recurring revenue.
And it performs for shareholders. For the past five years it has generated a return of 265.6%.
It has done so with a big build out of its cloud computing business and subscriptions for its software and other products. And this provides cash for its dividend yield of 1.5%. Revenues are up by 14% and its operating margin is fat at 34.1% which in turn drives the return on shareholder’s equity to 42.4%.
The stock isn’t cheap. But the company keeps building up its underlying assets and sales so a price-to-book ratio at 10.5 times and a price-to-sales ratio at 8.5 times isn’t that bad.
It should be bought in a tax-free account.
Digital Realty Trust (DLR)
Dividend Yield: 3.3%
Digital Realty Trust (NYSE:DLR) is a real estate investment trust which owns and runs data centers around the U.S. and the globe. Data centers are vital to cloud computing and data processing for most of the technology world.
The stock has delivered with a return over the past five years of 150.5%.
The company pays an ample tax-advantaged dividend yielding 3.3%. And it continues to perform with revenues gaining by 23.9% and its operating profit — as measured from funds from operations — running at 16.4%.
And yet, the REIT is a value at only 3 times its impressive book of assets.
It should be bought in a taxable account.
NextEra Energy (NEE)
Dividend Yield: 2.2%
NextEra Energy (NYSE:NEE) is a utility company — and you might think that means it isn’t a technology company. It has a base of regulated power businesses serving Florida which provides a dependable flow of profits. And in turn, those profits work to fund its massive unregulated tech-focused wind and solar power businesses around the U.S. and beyond.
This has made the company into one of the largest wind and solar power companies in the world. And it has delivered profits to shareholders with the stock generating a return over the past five years of 182.3%.
And it pays its shareholders with a dividend of 2.2%. Revenues have improved by 16.7% in just the past three years. And the return on equity is running at 9.8%. The stock is a value at only 3.1 times its book, while the underlying book value has increased by 40.1% in just the trailing three years. The stock should be bought in a tax-free account.
FMC Corporation (FMC)
Dividend Yield: 1.9%
FMC Corporation (NYSE:FMC) is a company with a history of technology innovation. It has invented and sold countless products and services in varied industries, and in turn has delivered to shareholders. The past five years has seen a return of 84.2%.
Now, you’ll note that the profits have been coming more recently. This is due to the history of the company transforming itself and its focus from varied technologies over time. But now after some business sales and acquisitions over the past years, it is fully focused on the technology of improving agricultural production. It is a global leader in pesticide and herbicide.
In a world in vital need of more food, FMC is the go-to agricultural tech company. Revenue is soaring at 69.3% over the past year and its operating margins are at a fat 17.3%. This helps to deliver a return on equity of 17.2%.
FMC stock’s dividend yields 1.9%. The stock is also a value at only 4 times book and 2.5 times its rapidly rising sales.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine … one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.