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3 dividend-paying tech stocks to buy in May

AlphabetThe company’s recent decision to pay dividends reinforces a notable trend: the evolution of technology stocks as dividend payers. This is important because many technology stocks tend to eschew dividends in favor of reinvesting in growth. It also confirms a push to offer payouts once they reach maturity.

Admittedly, Alphabet’s dividend yield of 0.5% is too small to attract the attention of income investors. Nevertheless, some technology stocks have begun to offer cash returns significantly higher than the S&P500‘s average of 1.3%. With an ongoing commitment to innovation, income investors should take note of the potentially lucrative and growing payouts in these three stocks.

International business machines

As one of the first technology companies to mature, International business machines (NYSE: IBM) offered dividends to investors for decades. In April, the company announced it would increase its payout to $6.68 per share per year. Although that was an increase of only 0.6%, this is the 29th year in a row that the dividend has increased.

Plus, with a 4% dividend yield, it may have become the dividend stock of the cloud. Arvind Krishna was the driving force behind the 2019 acquisition of Red Hat, which put IBM on the path to becoming a full-fledged cloud company.

That role in the cloud has also made it a player in the field of artificial intelligence (AI). This includes the team of consultants, IBM Research and IBM Watsonx. Watsonx is an enterprise application that includes tools for model creation, storage, and AI management.

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Additionally, the company’s shares have risen since Krishna became CEO in April 2020, a dramatic turnaround for a stock that lost value for most of the 2010s.

While you can’t describe IBM as a “growth stock,” under Krishna’s leadership the revenue declines have largely reversed and profits have risen.

Furthermore, the $12 billion in free cash flow for the trailing twelve months in the first quarter of 2024 easily exceeded the $6 billion in dividend costs during that period. This makes it likely that IBM will not only maintain its payout, but also increase it annually.

Crown Castle

Crown Castle (NYSE: CCI) plays a largely invisible but crucial role in the wireless industry. It specializes in “vertical real estate” and owns many of the towers that support the United States’ wireless infrastructure.

As a real estate investment trust (REIT), it pays at least 90% of its net income in dividends in exchange for an income tax exemption on its operating profits.

To that end, shareholders will earn $6.26 per share annually on the payout, a 6% cash return. Although Crown Castle has not increased its dividend since the end of 2022, its annual payout has increased every year since the dividend was initiated in 2014.

Granted, Crown Castle is facing some uncertainty, including a recent CEO change. Steven Moskowitz took over as CEO after former CEO Jay Brown retired in January. Yet even his 25 years of industry experience does not guarantee success as a leader.

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In addition, sales declines occurred as some Sprint contracts continue to be canceled due to its acquisition T-Mobile USA.

Despite challenges, financing the dividend has not been an issue. Over the next twelve months, the dividend cost the company approximately $2.7 billion. This is significantly less than the $3.2 billion in adjusted income from operations (AFFO) that will fund the payout. That increases the likelihood that it will increase its payout this year and continue its streak of annual dividend hikes.

Cisco systems

Cisco systems (NASDAQ: CSCO) is credited with building the Internet in the 1990s and 2000s, and its hardware and software solutions continue to underpin the world’s technological infrastructure.

Although it has become a slower growing stock in recent years, it has developed into a remarkable dividend play. The annual dividends of $1.60 per share yield about 3.2%. Although the payout rose less than 3% last year, it has increased every year since Cisco introduced the dividend in 2011.

Despite the dividend, the stock never recovered from the dot-com bust of the early 2000s, when its switching and router businesses fell victim to declining demand and competition. More recently, it has become more of a software-as-a-service (SaaS) stock and recently acquired Splunk to grow its cybersecurity presence. Yet it remains a mature company with slower growth.

Despite the slowdown, Cisco generated nearly $14 billion in free cash flow over the past twelve months. This covered about $6.3 billion in dividend costs, making it more likely that the payout increases would continue. While investors shouldn’t expect Cisco to become a high-flying tech stock again, it should remain an attractive option for income-seeking investors.

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Should you invest €1,000 in International Business Machines now?

Consider the following before purchasing shares in International Business Machines:

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Cisco Systems, and Crown Castle. The Motley Fool recommends International Business Machines and T-Mobile US. The Motley Fool has a disclosure policy.

3 Dividend-Paying Tech Stocks to Buy in May was originally published by The Motley Fool

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