Investors have their pick of eye-popping tech trends to invest in these days -- like autonomous vehicles, cloud-computing, augmented reality, the Internet of Things, etc. -- but top tech stocks that also pay healthy dividends are harder to come by.
That's why we reached out to a few Motley Fool contributors to track down some of the best tech stocks on the market that are also rewarding their investors with dividends. They came back with Verizon Communications (NYSE: VZ), Western Digital (NASDAQ: WDC), and Microsoft (NASDAQ: MSFT). Here's why.
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Buy before Verizon's 5G strength becomes evident
Steve Symington (Verizon): To be clear, some Verizon investors were rightly annoyed late last year when the company took a $4.6 billion writedown in the fourth quarter -- a move related to the relative underperformance of its "Oath" media subsidiary.
Of course, that's not to say Verizon's Media businesses are inconsequential. To the contrary, any improvement to that end moving forward could be a significant catalyst for the company. But with that bandage effectively ripped off in the meantime, shareholders should keep in mind that Verizon is still a massively profitable business that's still growing where it counts; the company added 1.2 million net wireless retail postpaid subscribers in the fourth quarter, and -- thanks in part to cost-savings initiatives -- adjusted net earnings per share soared 30% in Q4 despite a modest 1% increase in revenue. Verizon's operating cash flow also climbed more than 40% last year to $34.3 billion.
Looking ahead, Verizon is poised to start reaping the benefits of its massive investments in recent years to solidify its status as an early industry leader for 5G technology. 2018 marked the launch of Verizon's first commercial 5G network, and the company anticipates ramping its first mobile and in-home 5G networks in 2019.
With its core business performing well and a juicy dividend yielding 4.2% annually as of this writing, I think Verizon stock could be a perfect option for income-seeking investors.
Take full advantage of this cyclical industry
Anders Bylund (Western Digital): Data-storage veteran Western Digital has a lot of upside. Unlike arch-rival Seagate Technology (NASDAQ: STX), this company has augmented its hard-drive business with a serious solid-state strategy. Several industry analysts expect NAND memory chip prices to stabilize and maybe even turn back up by the end of 2019, putting makers of NAND-based storage devices in position for vigorous top-line growth and expanding profit margins over the next couple of years. The turning point could arrive as soon as the second quarter.
In the meantime, Western Digital shares are trading at a rock-bottom discount -- as if there were no signs at all of an upturn in the solid-state storage market. The stock has fallen 41% over the last 52 weeks, including a 20% drop in the last 6 months. You can pick up some Western Digital stubs at 18 times trailing earnings or 10 times forward estimates.
The low, low share prices also drove Western Digital's dividend yields higher. The company has been paying a steady quarterly dividend of $0.50 per share for several years now. That works out to a generous 3.8% yield at current stock prices. And I don't mean to set unrealistic expectations, here, but Western Digital spent just 28% of its free cash flow on dividend payouts in the last four quarters. Western Digital has focused on debt reduction in recent years, finally reaching a comfortable leverage ratio where total debt is about 2.6 times the company's cash reserves.
So it's not a flat-out perfect dividend stock, but Western Digital does offer a steady stream of generous payouts with plenty of headroom for future growth. When paired with a flexible product portfolio and today's bargain-basement valuations, Western Digital looks like a fantastic investment with a serious dividend component.
Don't overlook Microsoft
Chris Neiger (Microsoft): Yes, there are lots of other tech companies that offer a higher yield than Microsoft's current 1.64% yield, but this percentage is only one small part of the picture. Nearly any tech company can have a high yield, but not all of them can reinvent themselves in the way Microsoft has -- and continue being a top tech stock, no less.
Microsoft reported its second-quarter 2019 results at the end of January. Revenue was up nearly 15% to $32.47 billion, and earnings jumped 12% to $1.10. Those are solid results, but the real bright spot for the company's future comes from Microsoft's cloud-computing business. In the second quarter, Microsoft's commercial cloud revenue increased 48% from the year-ago quarter, and its public cloud-computing platform, Azure, skyrocketed 76%.
Microsoft is the No. 2 cloud-computing company right now, behind Amazon, with 16.5% market share. That's important for the company -- and its investors -- because cloud-computing is expected to grow into a $278 billion market by 2023, up from $175.8 billion last year. What makes cloud-computing even more attractive for the company is the fact that it comes with high margins. In the second quarter, Microsoft's commercial cloud margin was up five points to an impressive 62%.
If you only want a high-yield stock, there are plenty out there to choose from, but if you want a top tech stock that's setting itself up to benefit from one of the most important tech trends available right now -- and that pays a decent dividend -- then Microsoft is the stock for you.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Amazon and Western Digital. Chris Neiger has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Microsoft. The Motley Fool is short shares of Western Digital. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.