Today’s stock market is arguably led by tech stocks, especially those focused on mobile, cloud, or social media. In fact, five of the six largest companies by market capitalization are tech stocks including Apple Inc (AAPL), Microsoft Corporation (MSFT), Alphabet Inc (GOOG), Amazon.com Inc (AMZN), and Facebook Inc (FB). These are all good companies to own but from the perspective of dividend growth only Apple and Microsoft pay a dividend. But Microsoft is trading at a price-to-earnings multiple near 30X and Apple’s stock price has gained ~65% year-to-date.
For dividend growth investors, there is little choice here since valuation matters. But there are two legacy tech stocks that should be on the radar of dividend growth investors: Cisco Systems Inc (CSCO) and International Business Machine Corporation (IBM). These stocks are arguably not considered tech leaders at the moment. They are both struggling with growing the top line and are clearly not leaders in the aforesaid categories. But from the perspective of dividend growth investors they do have four desirable attributes lacking in other tech stocks: a decent yield, a growing dividend, a safe dividend, and a low valuation. In my opinion this makes Cisco and IBM a buy.