Inflation is running higher than it has in 40 years, national average gas prices just broke through to record highs, and Russia's invasion of Ukraine is roiling commodities markets.
Couple all this with the Federal Reserve set to initiate the first of several interest rate hikes this month, and stocks are facing pressures they haven't seen in some time. Yet one of the pillars investors can lean on in times of upheaval are dividend stocks. Their payments provide a measure of calm in a sea of turmoil.
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Last year, the asset managers at Hartford Funds released a report showing the performance of the S&P 500 index both with dividends and without, going all the way back to 1930. It discovered dividend-paying stocks contributed 41% to the total return of the index over that 90-year period.
It covered periods very similar to what we're experiencing now, war and recessions, as well as the so-called "lost decade," the 2000s, when the tech stock bubble burst, 9/11 happened, and the housing market crashed. That resulted in the S&P 500 generating negative returns for investors, but dividend stocks actually returned a positive 1.8%.
Whether you're a recent convert to dividend investing or have long seen the value in owning stocks that pay you to hold them, the question remains: Which dividend stocks do you buy?
Simply chasing yield is a risky pursuit, since a higher yield may indicate higher risk -- you need to look at the business too. This pair of dividend-paying tech stocks happen to not only be solid income stocks but also benefit from having great growth potential as well.
Image source: Texas Instruments.
1. Texas Instruments
Chipmaker Texas Instruments (NASDAQ: TXN) isn't a manufacturer of flashy graphic processors like Nvidia or high-end central processing units like those made by Intel. Instead, its chips are the workhorses of industry, the analog and embedded chips used by a wide range of customers in the automotive, communications, consumer electronics, and industrial markets.
The no-nonsense semiconductor stock is also largely shielded from the global computer chip shortage hobbling many of its peers. Over three-quarters of its $18.3 billion in annual revenue comes from the analog chips that are produced at its own factories. These were primarily responsible for the 27% year-over-year growth recorded.
Texas Instruments pays a quarterly dividend of $1.17 per share that currently yields 2.8% annually. It has raised the payout every year for 18 consecutive years, putting it on track to become a Dividend Aristocrat, or a company that hikes its dividend for 25 years or more.
Over the past three years, it has increased the dividend at a compounded rate of 17% annually, greater than the typical computer stock and more than double the rate of the average Nasdaq company.
The chipmaker also has a solid payout ratio of around 62%, a key metric for dividend investors, as it helps highlight the sustainability of a dividend. Maintaining the payout is also important for the company, and Texas Instrument chairman, president, and CEO Rich Templeton recently said, "Our dividends and stock repurchases reflect our continued commitment to return all free cash flow to our owners."
Of the $8.8 billion in operating cash flow Texas Instruments generated in 2021, it returned $4.4 billion worth to investors in the form of dividends and stock buybacks.
Image source: Getty Images.
2. Apple
Investors typically aren't buying Apple (NASDAQ: AAPL) stock for its dividend. The tech giant pays investors $0.88 per share on an annual basis for a yield of 0.55%. Think of it as juicing your investment.
Apple reintroduced the payout in 2012 after having suspended it in 1995 but since then has consistently increased the payout every year. In fact, over the last three years, Apple raised its dividend on average by almost 23% annually. And because its payout ratio is under 15%, it is highly sustainable and has plenty of room to be increased by similar double-digit rates for years to come.
The tech star had over $37 billion in cash burning a hole in its pocket at the end of January, along with another $27 billion in short-term investments. Its ability to keep its finger on the pulse of what consumers are looking for ensures sales will continue to grow to support its needs for increasing shareholder value.
Apple just revealed its latest consumer electronic products, and it met expectations for a new, low-cost but feature-rich iPhone SE 3, an upgraded iPad Air, a macro Mac Mini called Mac Studio, and a new Studio Display.
Analysts keep writing Apple off, believing the best of its days are behind it, but the tech leader manages to regularly subvert expectations. With a large, loyal customer following, primarily because of its stability, consistency, and quality over the years, it has pricing power few other companies can match.
In short, Apple is a dividend tech stock that you buy for the capital appreciation to come, bolstered by the income you get from a growing dividend payment.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends Apple, Intel, Nvidia, and Texas Instruments. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long March 2023 $120 calls on Apple, short January 2023 $57.50 puts on Intel, and short March 2023 $130 calls on Apple. 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.
