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Best Nasdaq Stocks for Dividends

Elizabeth Leary, Contributing Editor, <i>Kiplinger's Personal Finance</i>


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You might not think of "Nasdaq" as synonymous with big dividends. The Nasdaq Composite index, which essentially consists of every domestic and foreign stock that trades on the exchange, has long been heavy on technology. And technology companies have historically shown a bias for reinvesting their profits to finance future growth, rather than returning cash to shareholders. None of the FANGs -- Facebook (symbol FB), Amazon.com (AMZN), Netflix (NFLX) and Google (GOOGL), now called Alphabet -- pays a dividend.

But if you dig a little deeper, you'll find some rich payouts. Here are eight Nasdaq-listed companies with generous dividends that have the potential to grow. Even better, many of the stocks are dirt cheap. Several of the companies have similar profiles: large technology firms that are past their years of rapid growth but still throw off a lot of cash, which can be used to boost distributions. But the Nasdaq holds more than just tech, so we've also included a few companies from other sectors, as well as some less-well-known tech firms.

Apple


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52-week range: $92.00 - $134.54

Market capitalization: $544.0 billion

Annual dividend rate per share: $2.08

Yield: 2.1%

Price-earnings ratio: 11

Sure, the fate of Apple (symbol AAPL, $98.12) has become closely tied to the fate of the iPhone. And with our lives already saturated with Apple products, it's hard to see how the company can grow as rapidly in the future as it has over the past 10 years.

But that saturation works to the company's advantage. "Apple has created an ecosystem that makes its customers sticky," says Burns McKinney, comanager of the AllianzGI NFJ Dividend Value Fund (PNEAX). Because of hurdles Apple has built to transferring content from Apple products to other companies' products, and because of the ease with which Apple products work together, Apple customers tend to stay Apple customers, and so far they continue to be willing to pay a premium price for Apple products.

Apple still has room to grow in developing nations, as evidenced by record iPhone sales in China during the company's most-recent quarter, which ended December 26. Emerging countries accounted for 34% of the $76 billion in revenues Apple generated in the quarter.

Finally, the stock is shockingly cheap, and Apple's balance sheet is pristine. The stock sells for 11 times estimated year-ahead earnings, well below the S&P's P/E of 16. The company holds about $216 billion in cash and securities, which works out to about $39 per share. If you subtract that cash from the share price, Apple's P/E falls to just 6. "It's a deal in broad daylight," says McKinney. Since Apple resumed paying a dividend in 2012, it has boosted its payout at a 9.5% average annual pace.

Cisco Systems


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52-week range: $22.47-$30.31

Market capitalization: $134.3 billion

Annual dividend rate per share: $1.04

Yield: 3.9%

Price-earnings ratio: 12

Cisco (CSCO, $26.46) remains the industry leader for the routers and switches that carry the Internet's traffic over networks. But the stock has been treading water for more than a decade. Some of the stock's mediocre performance stems from flagging growth rates; Cisco's sales have grown at an annualized rate of just 4.2% over its past five fiscal years (Cisco's fiscal year ends in July). That compares with average annual sales growth of 10% for the five years through its 2010 fiscal year. The company has also been grappling with how to meet the long-term challenges of cloud computing and software-defined networking (in which programmers can direct their network's traffic using software, rather than relying on routers and switches themselves to direct traffic), both of which threaten to obviate the needs of Cisco customers for miles of expensive gear. More immediately, a slowing economy poses the threat of businesses delaying their routine gear upgrades.

But Cisco has the resources to meet its challenges. In its most recent quarter, which ended January 23, revenues from the Application Centric Infrastructure line - essentially Cisco's answer to the rise of software-defined networking - more than doubled from the same period a year earlier. And the company has a strong track record of making the right acquisitions when it needs to boost its in-house capabilities.

Cisco's stock, at 12 times estimated earnings, looks like a bargain, even after it jumped 10% on February 10 after the company announced a surprise 24% increase in the dividend. Plus, the company has $60 billion in cash and securities on hand.