Rise of Tech Dividends a Boon for ETFs

ETF Trends

For years, technology was the not first sector investors thought of when they thought of dividends. The largest sector weight in the S&P 500 is changing that and that change has been a boon for an array of exchange traded funds.

Tech’s rise as a credible dividend destination is nothing short of impressive. “In December 2003, just 22 IT stocks paid a dividend. That’s jumped to about 45 in July of this year,” reports Bryan Borzykowski for CNBC.

The conservative dividend posture of more mature tech companies helped the sector and some ETFs remain durable even as Internet and social media offerings swooned earlier this year. Although stocks from those industries have bounced back, it is the tech ETFs heavy on older stocks that pay dividends that have stood out this year. [New High for Old Tech ETF]

On Wednesday, 111 ETFs made new 52-week highs, a group that includes the Technology Select Sector SPDR (XLK) and the Vanguard Information Technology Index ETF (VGT) . Those ETFs are heavy on old, familiar tech darlings such as Apple (AAPL), Microsoft (MSFT), International Business Machines (IBM), Qualcomm (QCOM) and Cisco (CSCO).

The average payout increase from Apple, IBM, Cisco and Qualcomm this year is almost 14%. Those stocks combine for 28.3% of XLK’s weight. That does not include an increase from Microsoft, which XLK’s second-largest holding usually delivers in the second half of the year. Microsoft’s last two dividend increases were 21.7% and 15%, respectively. [Tech Dividend ETFs Offer Opportunity]

Apple, Microsoft, IBM, Qualcomm and Cisco combine for about 35% of XLK’s weight. There is room for more tech dividend growth. There are 257 tech names in the S&P 500, but less than 38% pay dividends, by far the lowest percentage of the 10 sectors tracked by the index, according to CNBC data.

Added tech dividend growth should be good news for the First Trust NASDAQ Technology Dividend Index Fund (TDIV) . TDIV did not make a new high Wednesday, but it is close to doing just that.

Investors have embraced the ETF in a big way this year, sending it up 12.3% while plowing almost $268 million into the fund. That is 44% of the ETF’s current assets under management total.

TDIV tracks the NASDAQ Technology Dividend Index, which has a dividend yield of 3.3%. That is well above what investors normally expect of the tech sector and that yield comes by virtue of a mandate that states the index hold at least 20% of its weight in telecom stocks.

So while TDIV offers leverage to the dividend growth of companies like Apple and Microsoft, it is also features the decades-long dividend growth steady payers like AT&T (NYSE: T) and Verizon (VZ). [ETFs With Safe Dividend Stocks]

First Trust NASDAQ Technology Dividend Index Fund

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Tom Lydon’s clients own shares of Apple and Microsoft.

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