Tech stocks have been the place to be if you're looking for big gains. The tech-heavy Nasdaq-100 has returned 446% over the last 10 years, compared to a 221% return from the blue-chip-focused S&P 500.
Tech is known for growth and innovation, so it's not surprising to see Nasdaq stocks performing better than the rest of the market. What's even better is that many top tech stocks also pay growing dividends to shareholders, which can pad your returns over many years.
If you're looking for income and growth, here's why Apple (NASDAQ: AAPL) and Texas Instruments (NASDAQ: TXN) are two great dividend-paying tech stock choices in August.
1. Apple
Apple is one of the most valuable brands in the world. It has a loyal base of customers, and it churns out a large amount of free cash flow each year that fuels investment in new products and dividend payments to shareholders.
Apple's dividend yield is below average at 0.53%, but it pays out only 15% of its free cash flow in dividends. It could double its yield if it doubled its payout ratio. But what you're really getting with Apple's dividend is growth. The quarterly payment has increased annually for 12 consecutive years, more than doubling over the last decade. This is because Apple continues to grow its free cash flow, nearly doubling it to $100 billion annually over the last five years.
While its largest revenue source, the iPhone, saw sales decline this year thanks to macroeconomic headwinds, its installed base of devices continues to hit new highs. This is fueling growth in higher-margin services, such as apps, subscriptions, and AppleCare protection plans.
Apple is also seeing users of competing smartphone brands switch to the iPhone. The conversion of these customers, along with growth in services, reflects Apple's compelling lineup of offerings across hardware and software.
Apple is rewarding shareholders while continuing to invest in its future. It is set to launch the new Vision Pro headset next year, which gives it another product to expand its installed base of devices. Additionally, investment in new AI features for iOS could convert even more users to try the iPhone over the next several years.
Apple's cash flow streams, dividend growth, new product opportunities, and brand power should make the stock a solid core holding for any investor's portfolio for the long term.
2. Texas Instruments
Another tech stock that should be at the top of your list of dividend candidates is Texas Instruments. It is a leading supplier of analog and embedded processors that are used in electronic devices from data centers to electric toothbrushes. Considering the company's long operating history and shareholder-friendly management, this is one of the best dividend stocks to hold for the long haul.
TI has been around since the Great Depression. That speaks volumes about the company's resiliency. It has increased its dividend for 19 consecutive years and currently pays an above-average yield of 2.94%.
The company has several advantages. It has a massive customer base of around 100,000 worldwide, which means TI is not dependent on a specific market or industry for growth. It also does all its manufacturing and packaging in-house, which lowers costs, increases product quality, and raises margins.
Its manufacturing efficiency produces outstanding margins. While weak demand across consumer and industrial markets pressured revenue, TI generated an impressive 17% free cash flow margin in the second quarter. The company may already be turning a corner, as revenue grew 3% in the second quarter over the previous quarter.
Moreover, the company is always investing to improve its manufacturing efficiency and improve margins. Growing free cash flow and paying dividends to shareholders over the long term are management's priorities, which should also help bring its currently high cash payout ratio of 139% back to a more sustainable level under 100%.
The stock hasn't moved higher in two years, but with continued dividend increases, the yield is now sitting close to a three-year high.
Besides the dividend, a good reason to buy shares of Texas Instruments is the increasing amount of chips being implemented in products, especially automotive. This is a long-term tailwind that should fuel satisfactory returns for shareholders.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Texas Instruments. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
