The technology sector is a surprisingly good source of dividend stocks.
This wasn’t always the case. During the heyday of the tech sector, hardly any tech stocks paid dividends at all.
But after the tech bubble burst, investors began pushing for technology companies—many of which have high cash flow and huge amounts of cash on their balance sheets—to pay dividends.
Two of the highest-yielding stocks in the Dow Jones Industrial Average are Cisco Systems (CSCO) and Intel Corporation (INTC), both of which hail from the tech sector. Neither Cisco nor Intel is a Dividend Achiever, which is a group of 265 stocks with 10+ years of consecutive dividend increases. You can see the full Dividend Achievers List here.
That said, Cisco and Intel are both highly profitable companies, with leadership positions in their respective industries. However, Cisco is in a stronger position right now. This article will discuss three reasons why Cisco is likely to be the better dividend growth stock moving forward.
Reason #1: Stronger Growth
Both Cisco and Intel are experiencing a slowdown in growth, but for different reasons. In the most recent fiscal quarter, Cisco’s revenue fell 2% year over year. The company expects full-year revenue in a range of flat to down 2%. This is a weak forecast, but it is worth noting that unfavorable currency exchange is largely to blame. Cisco generates more than 40% of its annual sales from international markets.
Operationally, Cisco is struggling from stagnation in two of its core product categories, routing and switching. Routing and switching revenue fell by 10% and 5% last quarter, respectively. However, Cisco is effectively managing costs. Margin expansion has fueled strong earnings growth in the past two years.
Source: 2016 Annual Report, page 6
Cisco’s earnings-per-share have increased 19% per year since 2014. On the other hand, Intel’s earnings-per-share declined 9% in 2016.
