Tech ETFs Become Dividend Plays

ETFtrends.com

It has been one of the leading contributors to S&P 500 dividend growth since the end of the financial crisis, but the technology sector still is not thought of by investors as a dividend destination on par with the likes of consumer staples, health care and other sectors.

Perhaps it is because the notion of dependable, growing dividends from technology, the largest sector weight in the S&P 500, is still a new phenomenon. Whatever the reason, tech is only starting to get some dividend attention and deservedly so. At the end of last year, the 44 stocks in the S&P 500 Information Technology Index had an average yield of 1.64%, according to CNBC.

That was up about 70 basis points from the end of 2012 and remember the PowerShares QQQ (QQQ) , the NASDAQ 100 tracking ETF, has a trailing 12-month yield of 1.43%. That is up from around 0.9% right before the tech bubble burst earlier this century. [QQQ's Quiet Rally]

As CNBC notes, tech dividends are low compared to high-yielding sectors like utilities, but that also means there is room for payout growth. Some tech ETFs have benefited from Apple’s (AAPL) as the second-largest U.S. dividend payer in dollar terms behind Exxon Mobil (XOM). For example, the Technology Select Sector SPDR (XLK) and the iShares U.S. Technology ETF (IYW) have an average yield of 1.35%. Apple is 13.6% of XLK’s weight and 16.1% of IYW.

Investors hunting for exposure to tech payouts via dividend ETFs need to do some homework. Several of the largest U.S. dividend ETFs use dividend increase streaks as part of their screening methodology, but because tech dividend growth has only escalated in the past several years, the sector is lightly represented in some of those ETFs. The three largest U.S. dividend ETFs by assets have a COMBINED weight to tech of less than 12%. [Fight Inflation WIth Dividend Growth ETFs]