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Get Solid Dividends And Growth With These Former Day-Trader Favorites

David Goodboy

My investing career has come nearly full circle from where I started.

Back in the early 1990s, day trading was just coming into vogue as a viable way to make a living. The advent of the personal computer, discount brokers and financial news TV networks allowed anyone to trade alongside Wall Street investors. Combined with real-time stock price feeds, low commissions and massive interest in the financial markets sparked from 1987's Black Monday stock market crash, this helped create fertile grounds for short-term investing.

Mix in the volatility of my favorite high-tech companies like Microsoft (MSFT) and IBM (IBM), and it was easy to see why many investors believed they could earn a good living with rapid-fire trading. Volatility is the lifeblood of a day trader.

As volatility ebbs and flows with the economic climate, day traders are forced to change approaches to find profits. Minutes or even seconds in a position can soon change to hours, days and even weeks or months in an attempt to eke out profits.

Many day traders evolved into long-term investors to whom dividends and stability are much more important than short-term upside momentum. Others, such as myself, morphed into a duality mindset in which long-term dividend investing is the core strategy and the old momentum-trading skills are used both to enter long-term positions and when the opportunity presents itself for purely momentum-driven trades.

Recently, while scanning for opportunities, I noticed the strong performance of tech stocks. I noted that some of the first stocks I ever invested in -- primarily Microsoft, IBM and Corning (GLW) -- have not only made solid upward moves but also pay surprisingly solid dividends.

Many dividend investors don't think of the high-tech sector as a place for dividends. Although this is accurate (to an extent), a few high-tech companies have been paying a reliable stream of dividends for years. I got excited at the opportunity to invest in my old favorite high-tech stocks to capture price appreciation and dividends at the same time.

Here's a closer look at a pair of my favorite dividend-paying high-tech companies.

Microsoft: Microsoft was among the first stocks I traded. I traded it exclusively for many months at a time during those early years. It provided enough volatility and range of motion to be an ideal day-trading stock.

It seems Microsoft has gotten its mojo back this year. Climbing from a low in the $26 area, shares have pushed above $35, making MSFT an ideal upside momentum play.

With a market cap of more than $250 billion, the company remains the world's leading software manufacturer. While profit growth and revenue have slowed down from Microsoft's early days, the company pays one of the highest dividends in the high-tech space, currently 3.3% with an annual payout of 92 cents a share. Dividends are paid quarterly. Microsoft produced more than $29 billion in free cash flow for fiscal 2012 -- and its dividend payout totaled a little more than $6 billion. As you can see, old "Mister Softee" has plenty of room to continue ramping up its dividend.

IBM: With a yield of just 1.85%, this high-tech monster pays much less than Microsoft. Another favorite of the earliest day traders, IBM is setting up to be an ideal purchase for long-term investment.

Dividends are also paid quarterly, with an annual payout of $3.80 a share. The company has recently approved a 12% dividend increase and $5 billion more in share buybacks. Boasting a market cap of more than $227 billion, a trailing price-to-earnings (P/E) ratio of 11.17 and revenue of more than $103 billion, IBM remains a leading figure in high tech.

Earnings per share have been increasing, while profit margins are widening, suggesting a solid opportunity for long-term investors.

Technically, shares are up more than 8% this year and have just pushed above the 50-day simple moving average, creating an ideal technical buying opportunity in Big Blue.

Risks to Consider: The high-tech sector is volatile. Even these big-name stocks have inherent volatility. Always use stops and position size properly when investing.

Action to Take --> I like IBM on a breakout close above the 50-day simple moving average with a 12-month target price of $215. Microsoft makes sense on a breakout close above $36 with a 12-month target of $45.

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