Plenty to Love in Tech Dividend Stocks

By David Fabian, FMD Capital Management

The world of dividend stocks has traditionally been dominated by companies in the utility, financial and consumer goods spaces. These stalwart sectors are known to offer strong and consistent cash flow models that bode well for returning value to shareholders through quarterly dividends.

However, a new theme is emerging in the dividend world that is combining promising growth potential with cash-rich balance sheets. Large- and mid-cap tech stocks have been increasingly turning their profits toward share buybacks and income streams with the intent of enticing fresh capital to their stock.

Companies such as Apple (AAPL) and Microsoft (MSFT) have undergone a transformation from growth-oriented powerhouses to value-added income names. While picking a few well-known dividend stocks within the technology sector is one way to play this theme, several ETFs offer exposure to this opportunity as well.

The First Trust Nasdaq Technology Dividend Index Fund (TDIV) is a specialized ETF that focuses exclusively on technology and telecommunication companies that have paid a dividend in the past 12 months. Both AAPL and MSFT are in the top five holdings of TDIV, which calculates the weightings of the underlying stocks based on a modified dividend weighting methodology that puts more importance into yield and sector makeup rather than market cap.

TDIV currently has more than $700 million in total assets spread among a diverse group of nearly 100 dividend stocks in the tech space. The 30-day SEC yield of this ETF is currently listed at 2.66% and income is paid quarterly to shareholders. In addition, the expense ratio of TDIV is listed at a modest 0.5% annually, or $50 for every $10,000 invested.

This ETF can potentially be used within the context of a diversified income portfolio as a tactical allocation that over weights the large-cap technology sector. Many of the underlying companies in TDIV are stable, global growth stories that have continued to offer strong momentum as well.

So far this year, TDIV has gained 10% in total return.

******

First Trust Nasdaq Technology Dividend Index Fund (TDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current yield on the portfolio is 4.94% and year to date the portfolio is up 7.26% (as of 8 October 2014).

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.