When it comes to investing, I like to get paid in cash. Capital gains are nice and to some extent necessary to build wealth. But, I like getting cash in the form of dividends. I also like my dividend payments to go up every year.
DIVIDENDS COME FROM CASH
To pay a dividend, a company has to have cash to pay it. Over the past several years, some US multinational companies have been taking on debt to pay out dividends. Why? For one thing interest rates on their borrowings have been very low. Secondly, a lot of cash has been stashed overseas and was costly to access.
Under the old tax laws, companies were required to pay 35% of foreign cash to Uncle Sam for the honor of bringing that cash home. So, companies just left the cash overseas to avoid paying the tax.
The new tax law changes all this. Companies will be required to pay a maximum of 15.5% tax on these accumulated overseas profits. Once the tax is paid, companies are free to bring the cash back to the US. And, hopefully pay some of it to you and me in the form of dividends.
WHO’S GOT THE CASH?
So who has the most cash overseas? The technology sector. Tech holds about $1 billion of the $2.5 billion estimate in un-remitted cash profits. Five tech companies represented in the Dividends Deluxe model portfolio hold most of it. They are Apple, Microsoft, IBM, Cisco Systems and Intel.
Will they show us the money? Let’s see what they are saying and doing.
In January, Apple said it would bring most of it’s $252 billion back home to invest. They have not directly mentioned how the cash brought home will effect the dividend.
Outside analysts suggest they will increase their dividend at a faster rate over the next two years and possibly pay a one time special dividend. They normally announce dividend increases during the 2nd quarter each year.
Microsoft has in excess of $100 billion of cash overseas. They have stated the change in tax laws have not changed their spending plans.
Microsoft states that they have returned large sums of capital to shareholders in the past and expect to continue to do so. They normally announce dividend increases in the third quarter.
Cisco announced it will bring home $67 billion of foreign cash. They recently announced a 13.8% dividend increase which is slightly lower than their historical dividend growth rate during the past 5 years.
Intel announced a 10% dividend increase in January. This increase was well above their prior 5 year trend of about 4%.
TECHNOLOGY SECTOR DIVIDEND YIELDS & GROWTH
Here’s a look at each company’s recent dividend yield, announced dividend increase if they have made one so far in 2018 and compound annual dividend growth rate from 2012-2017.
|Company||Recent Dividend Yield||2018 Dividend Increase||2012-17 Dividend Growth Rate|
With only two of the five companies announcing their regularly scheduled dividend increases in 2018, it’s hard to draw a conclusion if the new tax law is having an impact. Regardless, this batch of tech companies has been showing us the money over the past several years with double digit percent dividend hikes.
WRAPPING IT UP
These five tech companies provide some decent dividend yields. Partly fueled by the recently enacted tax reform act, they also offer the prospect of double digit dividend growth over the next couple of years.
- Are you looking to the tech sector for dividends?
- Do any of these stocks look like a good value to you now?
- Do you think the tax law changes will translate into higher dividend increases?
Leave a comment, join the conversation and let us know what you are thinking.
And, If you liked this stock sector review, be sure to check out the utility sector review right here at Dividends Diversify. You might also enjoy the Dividend Deep Dives for Apple and IBM:
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