Tech Funds Become Dividend Plays

By Todd Shriber, ETF Trends

It has been one of the leading contributors to S&P 500 dividend growth since the end of the financial crisis, but the technology sector still is not thought of by investors as a dividend destination on par with the likes of consumer staples, health care and other sectors.

Perhaps it is because the notion of dependable, growing dividends from technology, the largest sector weight in the S&P 500, is still a new phenomenon. Whatever the reason, tech is only starting to get some dividend attention and deservedly so. At the end of last year, the 44 stocks in the S&P 500 Information Technology Index had an average yield of 1.64%, according to CNBC.

As CNBC notes, tech dividends are low compared to high-yielding sectors like utilities, but that also means there is room for payout growth. Some tech Exchange Traded Funds have benefited from Apple’s (AAPL) as the second-largest U.S. dividend payer in dollar terms behind Exxon Mobil (XOM).

Investors hunting for exposure to tech payouts via dividend ETFs need to do some homework. Several of the largest U.S. dividend ETFs use dividend increase streaks as part of their screening methodology, but because tech dividend growth has only escalated in the past several years, the sector is lightly represented in some of those ETFs. The three largest U.S. dividend ETFs by assets have a combined weight to tech of less than 12%.

Tech’s lack of representation in traditional dividend ETFs has opened the door for ETFs such as the First Trust NASDAQ Technology Dividend Index Fund (TDIV) to gain traction.

TDIV turns two in August and already has more than $400 million in assets. Plus, its trailing 12-month yield of 2.32% is decent by the standards of tech ETFs. Dow components Intel (INTC), IBM (IBM), Cisco (CSCO) and Microsoft (MSFT) combine for over 32% of TDIV’s weight. Constituent companies are required to yield at least 0.5% and have paid a dividend in the past year.

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First Trust NASDAQ Technology Dididend Income Fund (TDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current TDIV dividend yield is 2.32%.

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.

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