The philosophy of many of the mature technology companies has changed, says MoneyShow's Jim Jubak, and this has important implication for how one invests in this sector.
Qualcomm (QCOM), the big maker of chips for cell phones, announced a 40% increase in its dividend last week. That’s really extraordinary, mostly because Qualcomm is a technology company.
If you think back say five, six, seven years, technology companies didn’t pay dividends at all. You didn’t get a dividend from Microsoft (MSFT) or Apple (AAPL) or Intel (INTC). Now, Qualcomm raising its dividend means it now pays about 2%, but that’s less than Apple pays at 2.65%, and Cisco (CSCO) is about the same.
I think what you’re seeing is a very interesting development in technology that needs to be figured into how you invest in the sector. One is, it seems to argue that older technology companies—which Qualcomm now is, which Cisco is, which Microsoft is, which Apple is—they’re paying dividends now that they feel that that’s part of what they do.
As they mature, they become much more like regular companies. That also means that they think that returning money to investors is a good thing, because maybe if we kept it ourselves we could invest it, but we’re not seeing the big, big, big opportunities now that we’re big, big, big, big, big companies.
So if you want to look for the old-style technology companies, you need to look below that tier, and I’m not even talking about the companies that are in trouble like HP (HPQ) or Dell (DELL), but below the big, healthy, old technology companies there are still tech companies that are behaving like companies of old, which is that they’re showing hockey stick growth. And they’re not paying dividends. They’re much, much smaller.
That’s really what we’re seeing in the technology sector, a kind of bifurcation into big, old companies still growing at a pretty good rate—but paying dividends—and new companies and new technologies, whether it’s 3D printing or whatnot. They’re not paying any dividends; they’re still trying to raise cash to invest in their business and go forward. That’s the place where old-style technology companies, in the sense of the way we used to think of technology companies are still flourishing.
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