U.S. Markets closed

Tech Dividend ETF: Microsoft Highlights Rising Sector Payouts


Microsoft (MSFT) shares were up in early trading Tuesday after the tech giant boosted its quarterly dividend and announced a $40 billion share buyback plan.

The news underscores how more tech companies are returning capital to shareholders in the form of dividends.

First Trust NASDAQ Technology Dividend Index Fund (TDIV) is an ETF designed to capitalize on this trend.

The NASDAQ Technology Dividend Index screens for companies that have paid a regular or common dividend within the past year. They must pay a yield of at least 0.5% and not had a decrease in common dividends per share paid within past 12 months. [Technology Focused ETF with a Dividend Twist]

The index employs a modified dividend value weighting methodology, according to manager First Trust.

“Slowly but surely, dividends are becoming a more common characteristic of technology stocks,” S&P Capital IQ said in a note earlier this year.

The yield on tech names within the S&P 500 has “notably increased” over the past two and a half years, according to the report.

“Further, between 2011 and May 2013, the information technology sector has seen an 18.9% increase in the number of dividend payers. The next highest single sector is health care, which saw a 10.3% boost. This increase has not been lost on investors,” S&P said.

Tech companies paying dividends have made the stocks attractive to a wider group of investors.

Looking at TDIV, the ETF’s industry exposure “is a bit different than other technology focused funds, which is not surprising, given the priority given to dividends,” according to S&P. “Its largest sector exposure is semiconductors and semiconductor equipment, an area that tends to pay dividends.”

Microsoft on Tuesday said its new share repurchase plan replaces a previous $40 billion program that was set to expire at the end of September. ETFs that incorporate buybacks into the strategies have been solid performers this year. They include PowerShares Buyback Achievers (PKW), AdvisorShares TrimTabs Float Shrink ETF (TTFS) and Guggenheim Insider Sentiment (NFO). [Buyback ETF Thrashing the Market Up Nearly $1 Billion in 2013]

First Trust NASDAQ Technology Dividend Index Fund

Full disclosure: Tom Lydon’s clients own MSFT.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.