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By Bob Ciura, InvestorPlace.com
The technology sector is not closely associated with dividend payouts. Instead, it’s more closely linked with growth stocks.
But this has changed somewhat in recent years. Now, many Nasdaq 100 stocks pay dividends to shareholders.
And, thanks to their strong profitability and free cash flow, tech stocks can grow their dividends at a high rate each year. The three tech stocks to buy below are great examples of firms that combine growth and dividends… and investors should take note.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) reported its first-quarter results on March 7. The company generated revenues of $12 billion during the quarter, which represents an increase of 34% compared to the prior year’s quarter. The strong revenue growth was driven by artificial intelligence (AI) data center investments by many of Broadcom’s customers, helping it outperform revenue expectations easily. Broadcom reported EPS of $10.99 for Q1, ahead of the analyst consensus estimate.
Broadcom’s biggest market is wireless communication, where the company owns a strong connectivity portfolio that includes advanced LTE, Bluetooth 5.x, Wi-Fi, global navigation satellite systems and so on. Broadcom is also well-positioned in the enterprise storage market, where it provides switching and other connectivity solutions and storage products such as SSD controllers.
These markets will continue to grow and, even without any major acquisitions, Broadcom’s revenues should continue to grow as well.
Broadcom’s dividend payout ratio has also risen considerably over the last couple of years due to many large dividend increases. Between 2010 and 2021, Broadcom increased its dividend by an incredible factor of more than 100. Its dividend still looks relatively safe, as it is well-covered by both EPS as well as free cash flow. AVGO stock currently yields 1.16%.
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Meta Platforms (META)
With nearly 4 billion people logging into at least one of Meta Platform’s (NASDAQ:META) platforms every month, the company attracts nearly 20% of all global advertising revenue, second only to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), which commands a substantial 30% market share.
On April 24, Meta Platforms reported Q1 results. For the quarter, the company posted revenue of $36.5 billion, marking strong growth of 27% compared to the previous year. This growth was driven by increased user activity, growth in ad impressions and higher ad pricing.
With revenue growth significantly exceeding the growth in expenses, Meta’s operating margin skyrocketed from 25% to 38%. Diluted EPS rose 114% to $4.71 per share as well. This figure was aided by share buybacks, with Meta repurchasing billions worth of stock during the past 12 months. For Q2 2024, Meta expects revenue to be in the range of $36.5 billion and $39 billion, up 18% at the midpoint.
Meta Platforms recently declared a quarterly dividend of 50 cents per share, which equates to $2 annually. The current yield is low at 0.4%, but the company can make up for a low starting yield with rapid dividend growth. With a 2024 dividend payout ratio of just 2.9%, there is plenty of room for aggressive dividend hikes in the future for META stock.
SAP (SAP)
SAP (NYSE:SAP) develops, sells and maintains a variety of enterprise software products that are used by corporations, governments and educational agencies. The company employs more than 100,000 people and has more than 400,000 customers in some 180 countries. SAP is headquartered in Germany and reports financial results in euros. U.S. investors can initiate an ownership stake in SAP through American Depository Receipts (ADRs) trading on the New York Stock Exchange under the ticker SAP.
SAP reported its Q1 earnings results on April 22. The company recorded revenues of 8.04 billion euros during the quarter, or about $8.63 billion. SAP’s revenues during the quarter were up 8% year-over-year (YOY), accelerating from the previous quarter’s growth rate. In particular, cloud revenue grew 24% YOY, slightly above the growth rate seen in the previous quarter.
Strong cloud revenue growth was a key driving factor for the company’s overall solid revenue performance during the period. EPS totaled 0.81 euro (87 cents) during the first quarter, also up 8% YOY.
For fiscal 2024, SAP is guiding for revenue growth of ~26% at constant currencies in the cloud segment, while cloud and software revenue overall is forecast to grow by 9%. SAP’s plans to grow its cloud computing revenues suggest an attractive long-term growth rate.
SAP has increased its dividend for years and is expected to have a solid 2024 dividend payout ratio. What’s more, considering the company’s earnings growth potential, the dividend look quite safe. SAP currently yields 1.2%.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
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