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The Technology Sector Has Become A Surprising Hotbed Of Dividend Growth Stocks

Technology Companies Become Dividend Growth Stocks

If you, like me, use the Dividend Champions, Contenders, and Challengers document [CCC] as a basic source list of dividend growth stocks, we have witnessed an explosion of technology stocks over the past few years.

When David Fish (R.I.P.) published his first list in December, 2007, there were no technology stocks on it. Now there are 50. (Hat tip to Robert Allan Schwartz, who maintains an archive of CCC documents at his site, tessellation.com. I used that to access old CCCs, and that made this article possible.)

Since David began in a December, I examined the lists for each subsequent December to look for technology stocks, which are formally called Information Technology in the GICS classification scheme. (For 2018, I used the October 31, 2018 list.) The CCC is now maintained by Justin Law, who took it over after David’s untimely death earlier this year.

Below are the tallies for technology companies on the CCC since December 2007. Note that in 2007-08, company sectors and industries were not noted on the CCC. Industries were added in 2009 for Champions, and sectors were added for all stocks in 2012.

To be honest, I am not sure whether David used the GICS system to classify companies in the early years. From 2009-2011, I used the Industries column to find tech companies on the CCC, and if it did not say “Technology,” I didn’t count that stock. Starting in 2012, I was able to use the Sectors column. I note that column simply listed “Technology” stocks, but the Information Technology name already existed in GICS. More recent CCCs specifically say “Information Tech.”

I apologize for any errors I made in making these counts – the general trend is pretty clear.

The numbers jump around a bit. Since 2007, the scope of the CCC has evolved, and so has the GICS classification scheme. Plus I think it took David a few years to identify all the qualifying stocks as his concept expanded from stocks with 25+ years streaks all the way down to stocks with 5+ year streaks.

All of these phenomena impacted what technology stocks appear on the CCC. The following timeline explains some of the important milestones.

2007 – The first CCC (not yet called that) covered only Dividend Champions, which are companies with dividend increase streaks of 25 straight years or more. Company sectors were not yet shown. Automatic Data Processing (ADP) and Diebold (OTCPK:DBD) – which are now Info Tech stocks – were on the list, but at that time I do not believe that they were classified as Info Tech stocks in GICS.

2009 – Dividend Challengers (streaks of 10-24 years) were added, as was the Industries column. No technology stocks are yet listed.

2010 – Dividend Contenders (streaks of 5-9 years) were added, and the list became more like the CCC as we know it today. A total of 13 “Technology” stocks appeared (as identified in the Industries column). This included telephone companies, which in later years would be labeled as “Telecommunications” companies. Microsoft (MSFT) and Texas Instruments (TXN) made their first appearances.

2011 – International Business Machines (IBM), Intel (INTC), and Texas Instruments (TXN) made their debuts on the CCC. (INTC was later dropped after a dividend freeze in 2014.)

2012 – Sectors column introduced to the CCC. There were 4 “Technology” Champions: ATT (T), ADP, Brady (BRC), and Telephone Data Systems (TDS). A total of 35 “Technology” companies overall appeared on the document. Accenture (ACN) and Qualcomm (QCOM) made their first CCC appearances.

2013 – The CCC nomenclature now seemed to follow GICS, with “Information Tech” and “Telecommunications” clearly distinguished. This caused the telephone companies (6 by my count) to be removed as “Technology” companies. Oracle (ORCL) and Visa (V) made their debuts as Info Tech companies on the CCC.

2014 – Avago Technologies (AVGO) and Broadcom entered the CCC as Info Tech companies. In 2016, Avago acquired Broadcom and adopted its name, while keeping the AVGO ticker symbol.

2015 – Cisco (CSCO) and Mastercard (MA) made their debuts as Info Tech companies.

2016 – Apple (AAPL) entered the CCC for the first time.

Company Quality Snapshots

In the rest of the article, I’m going to give an overview of some of the best or most interesting of the 50 Information Technology companies now in the CCC.

In an article earlier this year, I introduced “quality snapshots” for dividend growth companies. The idea proved popular: That article has garnered the most views ever for one of my articles, and people still access it.

The snapshots are based on company quality assessments from data providers that I respect. For the snapshots, I created a scoring system based on these quality ratings:

  • Value Line’s Safety Rating
  • Value Line’s Financial Grade
  • Morningstar’s Moat Rating
  • SP’s Credit Rating

For this article, I am adding Simply Safe Dividend’s Dividend Safety Rating to the mix.

Here’s how the snapshots work in terms of rating quality:

So a total of 25 points are available – if a company scores in the highest category on all 5 quality dimensions.

In the original article, only 8 DG companies of any kind scored in the highest category on all of the metrics. Three of them were tech companies. They are included in the section below, along with several other technology companies that I have chosen to feature, because they seem to have a high level of interest in articles and comments. There are a total of 12 featured companies.

Featured Companies

In the rest of this section, I’ll provide some basic dividend statistics about each featured company, its FASTGraph, and a link or two to recent articles about the company to get you started on further research if you’re so inclined. The linked articles are not paywalled at this time.

Note: In the statistics that follow, the 5-year DGR covers 2013-2017, so the 2018 increase is also provided. The companies are listed alphabetically.

Accenture

Yield: 1.9%

Years of Dividend Growth: 14

5-year DGR: 12.4% per year

2018 Increase: 10%

Recent Articles: Why Is Accenture (ACN) Down 9.2% Since Last Earnings Report?

Apple

Yield: 1.4%

Years of Dividend Growth: 7

5-year DGR: 27% per year

2018 Increase: 16%

Recent Articles: Apple: Don’t Overreact; Apple down 7% on soft guidance; Should You Buy or Sell Apple for No Longer Disclosing iPhone Sales Numbers?

Automatic Data Processing

Yield: 2.0%

Years of Dividend Growth: 43

5-year DGR: 10.6% per year

2018 Increase: 9.5%

Recent Articles: Are You Looking for a High-Growth Dividend Stock? Automatic Data Processing (ADP) Could Be a Great Choice

Broadcom

Yield: 3.2%

Years of Dividend Growth: 8

5-year DGR: 51% per year

2018 Increase: None yet (Awaiting announcement for 2018)

Recent Articles: Broadcom completes $18.9B acquisition of CA Technologies; We’re Buying this Stock on Tuesday, November 6

Cisco

Yield: 2.9%

Years of Dividend Growth: 8

5-year DGR: 26% per year

2018 Increase: 13.8%

Recent Articles: Is Cisco Systems (CSCO) Outperforming Other Computer and Technology Stocks This Year?

IBM

Yield: 5.4%

Years of Dividend Growth: 23

5-year DGR: 12.3% per year

2018 Increase: 4.7%

Recent Articles: IBM’s Catch Up Play with Red Hat; Did IBM Buy Red Hat at a Fair Price?

Mastercard

Yield: 0.5%

Years of Dividend Growth: 7

5-year DGR: 53% per year

2018 Increase: 13.6%

Recent Articles: Mastercard: I Have Acquired More Shares For The FFJ Portfolio; Mastercard, Inc. 2018 Q3 – Results – Earnings Call Slides

Microsoft

Yield: 1.7%

Years of Dividend Growth: 17

5-year DGR: 13.9% per year

2018 Increase: 9.5%

Recent Articles: Should You Buy Microsoft Stock?; How Much Longer Can Microsoft Deliver the Goods?

Oracle

Yield: 1.6%

Years of Dividend Growth: 9

5-year DGR: 25% per year

2018 Increase: None yet

Note: Oracle’s payment record caught me by surprise. Oracle has been stretching out its dividend increases, but in a way that has kept it on the CCC, because each year’s total has shown an increase over the prior year.

The spike payment at the end of 2012 was a special dividend, which normally is not counted in whether a company has a dividend-increase streak going. I didn’t find any articles discussing Oracle’s unusual dividend pattern. Perhaps someone can enlighten me/us in the comments.

Qualcomm

Yield: 3.9%

Years of Dividend Growth: 16

5-year DGR: 18.3% per year

2018 Increase: 8.8%

Recent Articles: Will Top Line Woes Impact QUALCOMM’s Q4 Earnings?

Texas Instruments

Yield: 3.2%

Years of Dividend Growth: 15

5-year DGR: 25% per year

2018 Increase: 24%

Recent Articles: Texas Instruments Is A Great Addition To Your Dividend Growth Portfolio ; Dividend Growth Stock of the Month for November, 2018

Visa

Yield: 0.7%

Years of Dividend Growth: 11

5-year DGR: 23% per year

2018 Increase: 19.1%

Recent Articles: Visa Is Now Worth $150; Visa: Safe Money

Main Takeaways

This article is not meant to be a deep dive into the stocks featured. Rather the goal is to provide perspective on the evolution of technology stocks as dividend growth investments.

For many years, DG investors could basically ignore the technology sector. That is no longer true. No fewer than 50 tech stocks qualify as DG stocks, if you accept the definition of such stocks as those with an uninterrupted string of at least 5 years of increasing their dividends.

I began adding tech stocks several years ago to my own holdings, including Apple, Microsoft, and Cisco.

Looking at today’s valuations, plus earnings stability and trajectories based on FASTGraphs’ depictions, these stocks look like they’d be worth looking at further:

  • Apple
  • Broadcom
  • Oracle (but consider the weird spacing of dividend increases)
  • Qualcomm
  • Texas Instruments

Disclosure: I am/we are long QCOM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.