Tech Stocks with Market-Beating Yields

Looking for steady dividends above 2% in the IT sector? These five stocks offer that—and meet S&P's criteria for capital appreciation and earnings potential

by Michael Kaye, CFA From Standard & Poor's Equity Research

It seems a bit strange to see the words "technology stock" and "dividend" in the same sentence, but a number of companies in the sector do make regular cash payouts. However, yields on dividends paid by tech companies are generally not as high as issues in other sectors. But it is possible to find some names in the group that actually carry above-market yields.

That's what we set out to uncover with this week's screen. We started with the list of stocks in S&P's Information Technology sector and looked for those with a dividend yield above 2%—greater than the 1.8% average yield for the S&P 500 (as of Oct. 25).

But we wanted to make sure the shares had the opportunity for capital appreciation, as well. So we next sifted for those issues with the highest scores under S&P's proprietary Fair Value model, which calculates a stock's weekly Fair Value—the price at which it should trade at current market levels—based on fundamental data such as corporate earnings and growth potential, price-to-book value, return on equity, and current yield relative to the S&P 500. We set our screen to snag those issues ranked 4 (moderately undervalued) or 5 (significantly undervalued).

We also wanted to make sure the stocks had good earnings potential, so we sifted for those with projected five-year annualized earnings-per-share growth rates of at least 9%. When we ran the numbers, these five names emerged:

Kaye, an analyst for Standard & Poor's Portfolio Services, is the author of The Standard & Poor's Guide to Selecting Stocks.