The prominence of dividends in the technology sector is growing in a big way and the ProShares S&P Technology Dividend Aristocrats ETF (CBOE: TDV) is one of the ETFs dedicated to that increasingly important theme.
TDV, which debuted last November, follows the S&P Technology Dividend Aristocrats, which requires member firms to have payout increase streaks of at least seven years. Its 34 holdings are equally weighted, a strategy that helps reduce single-stock risk, but the fund is nonetheless exposed to some tech dividend payers with attractive traits.
“If tech shares do cool off, the ones that sport attractive yields and trade at relatively low price/earnings ratios could be smart plays,” reports Lawrence Strauss for Barron’s. “That’s partly because a big yield can offset some capital losses, and partly because tech shares fitting those criteria are already cheap and don’t have as far to fall as more highly valued names.”
Some of the dependable tech dividend growers with tempting yields and attractive volatility traits include Dow component International Business Machines (NYSE: IBM), semiconductor maker Broadcom (NASDAQ: AVGO), Cisco Systems (NASDQ: CSCO) and Hewlett Packard Enterprise (NYSE: HPE).
Time For TDV
Each of the aforementioned companies are members of TDV’s roster and the average dividend increase streak among the quartet is nearly 12 years, according to ProShares data. At 23 consecutive years, IBM has the third-longest payout increase streak among TDV components.
“Even though the company’s top-line growth has been challenged at times, IBM continues to generate plenty of cash flow to support its dividend. As of Sept. 30, it totaled $12.3 billion over the previous year,” according to Barron’s.
This year, only the healthcare sector at 10% is expected to outpace the 9% dividend growth offered by technology. Technology and healthcare are the top two sector allocations in the S&P 500. TDV is reflecting some of those expectations as highlighted by a gain of almost 4% over the past month.
Another TDV holding that generates tons of cash and has ample room for dividend growth is Cisco, another Dow component.
“In the fiscal year that ended in July, the company’s free cash flow totaled nearly $15 billion, up from $12.8 billion a year earlier. Analysts expect the company to earn $3.24 a share this fiscal year, which ends in July, up 5% from $3.10 last year,” reports Barron’s.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.