+ 2.03
+ 0.61%
+ 2.82
+ 0.84%
+ 3.01
+ 0.74%

An Old Tech ETF As A Yield Play

July 12, 2016 8:20 am
Share to Linkedin Share to Twitter Share to Facebook Share to Print License More

There was a time when “technology sector” and “dividends” did not belong in the same sentence, unless that sentence was saying the former did not deliver much of the latter. Times, of course, change, and when it comes to changing times for technology stocks and dividends, times are changing for the better.

In addition to being one of the biggest contributors to the buyback boom of recent years, technology stocks have also been major drivers of the S&P 500's dividend growth since the financial crisis. In fact, technology, the S&P 500's largest sector weight, is now one of the benchmark U.S. equity index's biggest dividend-paying groups in dollar terms.

Related Link: Make A Quality Query With This Dividend ETF

Still, the Technology SPDR (ETF) (NYSE: XLK), the largest exchange-traded fund by assets tracking the sector, does not scream “yield play.” XLK's trailing 12-month dividend yield is 1.92 percent. Well, these days, that might actually qualify as a yield. XLK's trailing 12-month dividend yield is about 50 basis points higher than Monday's closing on 10-year Treasurys.

What’s Going On

Much of the technology sector's dividend growth, and that of XLK, is attributable to old school tech names, such as Microsoft Corporation (NASDAQ: MSFT) and Cisco Systems, Inc. (NASDAQ: CSCO). However, Apple Inc. (NASDAQ: AAPL) has proven to be an impressive dividend grower over the past several years. Those three stocks combine for nearly 26 percent of XLK's weight.

“Right now, the traditionally defensive sectors — Utilities, Staples, and Telecom — are the main beneficiaries on account of a shortage of high-quality US dollar assets. Anyone can explain to an investor that these three equity sectors have similar duration and asset-like quality characteristics as bonds,” said Rareview Macro founder Neil Azous in a note out Monday.

Azous further highlights the utility of old school technology stocks in a low yield environment with the following analysis. A screen of large-cap stocks with credit ratings of A- or better and dividend yields higher than the yields on their corporate bonds with seven years of maturity or longer turns up S&P 500 names.

Related Link: Amazon Barely Enough To Prop Up Discretionary ETFs

“For example, old-technology — MSFT, CSCO, INTC, QCOM, TXN, IBM, etc. — meet this criterion. Surprisingly, this space has received very little airplay during this entire yield crunch,” said Azous.

XLK is up 3.6 percent year-to-date. That trails the S&P 500, but the tech ETF is also well ahead of the Nasdaq Composite.

Did you like this article? Could it have been improved? Please email feedback@benzinga.com to let us know!

Related Articles

Benzinga's Bulls And Bears Of The Week: Apple, Chevron, GM, GE, Peloton And More

Benzinga has examined the prospects for many investor favorite stocks over the past week. The past week's bullish calls included the iPhone maker, Google's parent and an automotive leader. read more

Is Apple Or Microsoft The Better Buy Right Now?

As the S&P 500 hit a new record closing high for the second straight day on Thursday, CNBC’s “Trading Nation” asked two traders which of the two largest S&P 500 stocks is the better buy: Microsoft Corp. (NASDAQ: MSFT) or Apple Inc. (NASDAQ: read more

Thinking About Buying Stock In Levi Strauss, DocuSign, Amazon Or Netflix?

One of the most common questions traders have about stocks is “Why Is It Moving?” That’s why Benzinga created the Why Is It Moving, or WIIM, feature in Benzinga Pro. WIIMs are a one-sentence description as to why that stock is moving. read more

3 FAANG Stock Laggards Look For A Return To Highs

Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL) and Netflix Inc (NASDAQ: NFLX) have been lagging their FAANG counterparts. read more