Investors interested in capturing earnings growth and generating a little income along the way can look to a technology dividend exchange traded fund.
The First Trust NASDAQ Technology Dividend Index Fund (NasdaqGS: TDIV) has increased 11.0% over the past three months and gained 18.5% year-to-date.
The technology sector has been gaining momentum in recent months after falling out of favor along with other growth stocks at the start of a volatile year.
Looking ahead, growing optimism for the upcoming earnings season is fueling the rally in tech as many market observers anticipate a turnaround in corporate profits. Historically, after a profit falloff, the technology sector has been among the best areas in a rebound.
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“The only sector that has record an increase in expected earnings growth since the start of the quarter (due to upward revisions to earnings estimates) is the information technology sector,” according to FactSet.
Furthermore, the ongoing search for yield has also supported some technology stocks, reports Aaron Kuriloff for the Wall Street Journal.
Specifically, three of the top four Dow industrial components over the past three months include tech stocks with relatively high dividends, including Apple (NasdaqGS: AAPL), Intel Corp. (NasdaqGS: INTC) and Microsoft Corp. (NasdaqGS: MSFT).
“There are certainly plenty of high-quality, stable tech companies delivering dividend yield,” Tony DeSpirito, portfolio manager for the BlackRock Equity Dividend Fund, told the WSJ.
Moreover, with bond yields still hovering near historic lows and growth under pressure in Europe and Japan, many yield-hungry investors will continue to look for alternative sources for income.
Consequently, investors who want exposure to a potential rebound in earnings growth and dividend yields can look to TDIV, which tracks an index of technology dividend-paying stocks. Underlying components have paid a regular or common dividend with the past 12 months, with a yield of at least 0.5%, and have not had a decrease in dividends per share within the past 12 months.
TDIV shows a 2.46% 12-month yield. In contrast, the broader Technology Select Sector SPDR (NYSEArca: XLK) has a 1.84% 12-month yield and the SPDR S&P 500 ETF (NYSEArca: SPY) has a 2.06% 12-month yield.
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The ETF’s top holdings include AAPL 8.4%, INTC 8.2%, Cisco Systems (NasdaqGS: CSCO) 7.9%, MSFT 7.9% and International Business Machines (NYSE: IBM) 7.8%.
Sub-sector weights include semiconductors 28.8%, telecom services 14.9%, software 14.3%, tech hardware 13.9%, communications equipment 10.6%, IT services 9.1%, wireless telecom services 4.4%, electronic equipment 1.6%, household durables 0.9% and internet software 0.9%.
For more information on the tech sector, visit our technology category.