Digital Dividends

By Todd Shriber, ETF Trends

Investors can play the theme of growing tech dividends with the First Trust NASDAQ Technology Dividend Index Fund (Nasdaq: TDIV).

“Many of the underlying companies in TDIV are in a more mature phase of their business cycle which allows them to distribute earnings while still seeking long-term growth,” according to FMD Capital.

TDIV holds both NASDAQ and New York Stock Exchange-listed firms and its 12-month distribution yield of 2.43% is considerably higher than that of the NASDAQ 100. Still, some of the NASDAQ’s most prominent names that have recently matured into legitimate dividend stocks are found among TDIV’s 87 holdings.

That roster includes Dow components Intel (Nasdaq: INTC), Cisco (Nasdaq: CSCO) and Microsoft (Nasdaq: MSFT). TDIV gained 23.1% last despite, getting little help from Apple and being home to International Business Machines (NYSE: IBM), one of the Dow’s worst performers in 2013. IBM and Apple combine for almost 16% of TDIV’s weight. TDIV offers another advantage.

Tech companies “have low debt ratios and offer exposure to businesses that aren’t as susceptible to interest rate risk as utilities or telecommunications stocks,” according to FMD Capital. Historically, tech is one of the top-performing sectors when interest rates rise.

There is more to the tech dividend story. Investors have shown a willingness to pay up for expensive defensive sectors such as consumer staples and utilities because of past dividend growth from some of those companies, but the phenomenon of tech dividend growth is still new. That means some investors still may not realize the potential for substantial dividend growth from the tech sector going forward.

For example, in 2013, the average dividend increase by Apple, Cisco, Microsoft and IBM was 17.6%.

“Historically, for example, technology companies have been associated with reinvesting the bulk of their profits into their businesses to finance future growth, but more recently, some have favored share buybacks, dividend initiation or dividend increases. Since this trend in technology stocks is fairly recent (Cisco just began paying in 2011, for instance, and Apple in 2012), backward-looking dividend growth screens with five-, ten- or twenty-year periods may not fully capture these dividend initiations or increases,” said WisdomTree Research Director Jeremy Schwartz in a note published in October 2013.

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First Trust NASDAQ Technology Dividend Index Fund (TDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio. 

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.