We recently published a list of the 13 Best Technology Dividend Stocks to Invest in. In this article, we are going to take a look at where Texas Instruments Incorporated (NASDAQ:TXN) stands against other best technology dividend stocks.
There was a time when tech stocks drew investor interest purely for their growth potential. But more recently, they’ve been gaining attention for a different reason: dividends. This marks a major shift, given that tech companies have traditionally focused their resources on innovation and expansion. Today, a significant portion of the tech sector consists of established firms with solid business models, healthy margins, steady growth, strong financials, and manageable debt levels. According to S&P, about 39% of tech companies in the Composite 1500 index are now returning capital to shareholders through dividends—a notable jump from 28% back in 2013.
In addition, technology stocks have emerged as a major contributor to the market’s overall dividend payouts. FactSet data showed that tech companies now account for around 13% of the total dollar value of dividends within the S&P Composite Index. That puts the tech sector just behind financials, making it the second-largest source of dividends in the index—with a strong chance of taking the top spot in the near future.
What’s more surprising is that tech companies haven’t just begun distributing dividends—they’ve also seen a select group consistently raise their payouts year after year. This group includes some of the world’s most prominent and successful names, alongside major global consulting firms, credit card providers, and other tech-adjacent players. Over the past several years, dividend growth from the technology sector has outpaced that of the broader market. Data from S&P Dow Jones Indices showed that tech companies within the S&P Composite more than doubled their total dividend payouts by 2023 compared to 2013. This growth ranks as the fourth highest among all sectors and significantly surpasses the Index’s overall dividend increase of 7.2% during the same timeframe. With tech’s current dividend payout ratio at just 39%, there appears to be considerable room for further expansion.
The move by leading tech firms to start paying dividends has sparked discussions around finding the right balance between capital appreciation and income generation. Sam Witherow, who manages the JPM Global Equity Income fund, noted that although his fund has traditionally included a mix of dividend-paying companies and those focused on capital growth, the characteristics of some of these companies are now evolving. He made the following comment about these strategies:
“We are seeking to provide clients with both a yield premium to the market and a dividend growth premium to the market at the aggregate portfolio level. It’s the combination of the two characteristics that typically leads to the best risk-adjusted returns. To deliver this we have always looked to have diversified exposure across global industries including traditionally growthier industries like consumer discretionary or tech.”
Sam Buckingham, an investment manager at Abrdn Portfolio Solutions, pointed out that growth stocks offering smaller dividends could be useful for income funds aiming to diversify across different sectors and investment factors. He explained that while these stocks typically start with lower yields, they often have the potential for dividend growth over time. When paired with more traditional income stocks—like those in the utilities sector that offer higher initial payouts but slower growth—they can help create a more balanced portfolio. Given this, we will take a look at some of the best dividend stocks in the tech sector.
A robotic arm in the process of assembling a complex circuit board – showing the industrial scale the company operates at.
Our Methodology
For this list, we scanned the holdings of the S&P Information Technology index, which tracks the performance of major tech companies. From there, we identified companies that pay dividends to shareholders and picked 13 companies with the highest number of hedge fund investors, as per Insider Monkey’s Q4 2024 database. The stocks are ranked according to the number of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 66
Texas Instruments Incorporated (NASDAQ:TXN) is an American semiconductor company that specializes in analog and embedded chips. The company currently pays a quarterly dividend of $1.36 per share and has a dividend yield of 3.47%, as of April 10. In 2024, it achieved its 21st consecutive annual dividend hike, which makes TXN one of the best dividend stocks from the tech sector.
Texas Instruments Incorporated (NASDAQ:TXN) earns most of its revenue through two main segments: Analog and Embedded Processing. One of its key strengths lies in its in-house manufacturing operations, which give the company greater control over production and its supply chain.
Over the past year, Texas Instruments Incorporated (NASDAQ:TXN) has focused on how it allocates capital to sustain a healthy free cash flow. This strategy includes continued investment in research and development, as well as expanding its manufacturing footprint. Texas Instruments also prioritizes building strong relationships with its customers, aided by its digital sales platform, TI.com. Its dedication to sustainable practices not only meets regulatory expectations but also supports its public image and environmental impact.
Texas Instruments Incorporated (NASDAQ:TXN) has cemented its leadership position in the semiconductor industry. Under the guidance of former CEO Rich Templeton, TI became a standout in dividend growth, raising its payout at an annual rate of 24% between 2004 and 2023. In FY24, the company posted $6.3 billion in operating cash flow over the trailing twelve months, along with $1.5 billion in free cash flow. During the fourth quarter alone, it returned $4.8 billion to shareholders through dividends.
Overall, TXN ranks 8th on our list of the best dividend stocks in the tech sector. While we acknowledge the potential of TXN as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than TXN but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
