J2 Global Inc (NASDAQ:JCOM)
One company that many readers may not be familiar with is j2 Global Inc. My purpose in featuring this aggressive candidate was to offer an example of a historically pure growth technology company that appears to be morphing into a dividend growth stock. But before I show that, I offer the following slide that provides an overview of j2 Global’s business.
A quick glance at the Earnings and Price Correlated FAST Graphs™ on J2 Global Inc (NASDAQ:JCOM) provides an excellent example of the benefit of stacking the light blue shaded dividend area on top of the orange earnings justified valuation line. Instantly it is revealed that the company paid their first dividend in 2012.
One interesting aspect of the performance history of J2 Global Inc (NASDAQ:JCOM) is how their dividend closely matches the dividends derived from the S&P 500 even though they have only paid a dividend since 2012 (first dividend paid on December 20, 2011).
Since this company has only recently been paying a dividend, I offer the following slide where management has provided 2013 guidance. This is important because future dividends will most assuredly depend on the company’s future revenues.
The following FUN Graph (Fundamental Underlying Numbers) shows that revenue guidance (sales) for 2013 represent a substantial increase over 2012. Therefore, it appears the company will have ample ability to continue paying and perhaps increasing their future dividends.
At this point one can only speculate that J2 Global Inc (NASDAQ:JCOM)’s board of directors will continue with their dividend policy. However, since the company’s most recent financial report bragged about their ninth consecutive dividend payment, this may not be an unrealistic assumption. Moreover, the following FUN Graph shows that cash flow per share (cflps) and free cash flow per share (fcflps) suggest that the company is at least capable of continuing to pay and possibly increase their dividend in the future. Note: FUN Graphs calculates free cash flow after dividends have been paid.
David Fish Challengers
For additional insight into the dividend paying prospects of the Information Technology sector, I thought it would be interesting to show the following companies on David Fish’s Challenger’s list. These are companies that have raised their dividend consecutively for at least 5 to 9 straight years. Only two companies on this list failed to make my cut. Altera Corporation (NASDAQ:ALTR) was rejected due to recent inconsistency in their earnings and high valuation. Visa did not meet my minimum dividend yield threshold. Otherwise, the remaining companies were included in my conservative and aggressive candidates.
Visa Inc (NYSE:V)
Even though Visa did not make my cut, I thought it would be interesting to showcase their phenomenal record. Therefore, dividend growth investors interested in total return might want to take a closer look at Visa.
Visa Inc (NYSE:V) Historical Graph
Visa Inc (NYSE:V) Performance Graph
Visa Inc (NYSE:V) Forecasting Graph
Summary and Conclusions
I believe it would be naïve to believe that large technology behemoths such as Microsoft, Cisco, Intel, Apple or IBM, etc., are destined to becoming and remaining blue-chip dividend paying stalwarts like Procter & Gamble or Johnson & Johnson. However, I further believe that their size and scale are needed to provide the solid infrastructure and foundation that the Information Technology sector needs to fulfill its inevitable destinies and even promise. Therefore, I also don’t believe it’s prudent to rule out the relevancy of our largest icons of technology. True, it is imperative that they continue to evolve and adapt. But it is also true that their scale and size provide powerful moats potentially ensuring their survival and growth potential.
Consequently, I suggest that investors seeking more total return from their dividend growth portfolios should not overlook the opportunities available in the Information Technology sector. One of the oldest doctrines for prudent investing suggests that higher risk should only be assumed when there’s an expectation for higher returns. As a general statement, most of the dividend growth stocks presented in this article are forecast to offer higher future earnings growth rates than most blue-chip dividend paying stocks found in the other sectors. I believe it is safe to assume that higher earnings growth rates should also deliver higher dividend growth rates. As a result, many dividend paying Information Technology companies hold the promise of offering the dividend growth investor not only higher total returns, but a greater level of cumulative dividend income as well.
Dividend paying Information Technology stocks may not suit the most prudent or cautious dividend growth investor. On the other hand, for those with a greater appetite for risk, or perhaps a longer timeframe, it might be wise to prudently include some high-tech for higher total returns. But if they do, the prudent dividend growth investor will simultaneously realize that a constant monitoring of their Information Technology holdings is a necessity.
My next article will cover the Telecommunication Services sector.
Disclosure: Long ACN, ORCL and QCOM at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
