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Three Best Dividend-Paying Tech Stocks

Michael Dell has succeeded in his bid to buy out investors in the company he founded, Dell (DELL), and take it private with help from private-equity firm Silver Lake, Microsoft (MSFT) and a group of investment banks. Shareholders will be getting about $13.65 per share, which is 25% above where...

Michael Dell has succeeded in his bid to buy out investors in the company he founded, Dell (DELL), and take it private with help from private-equity firm Silver Lake, Microsoft (MSFT) and a group of investment banks. Shareholders will be getting about $13.65 per share, which is 25% above where the stock was trading before the deal came to light, but below where it was priced for most of 2010 and 2011. So not every shareholder is happy about this deal.

Dell shareholders will also be losing their eight-cents-a-quarter dividend, which Dell just initiated last year.

Luckily for income investors though, there are now more dividend-paying tech companies than ever. So if you’re looking for an income-generating tech stock to fill the hole Dell is leaving in your portfolio, here are some good options.

Intel Corp. (INTC) yields about 4.3% at current prices. The stock was recently chosen as a Dividend Digest Top Pick for 2013 by Stephen Todd, Editor of Todd Market Forecast. He wrote:

“Intel Corp. (INTC) has a current dividend yield of [over] 4%. It also has a solid record of dividend increases. Since August of 2000, Intel has increased its dividend by ten fold with no decreases along the way. I also like the fact that the stock is close to a three-year low which has provided support numerous times.”

Paying almost as much as INTC, at a current yield of 3.4%, is Microsoft Corp. (MSFT), which has been a popular recommendation for its value lately. Most recently, it was recommended in FXC Newletter, where Editor Nicholas Curzio wrote:

“Microsoft (MSFT) last week reported a slight decline in its fiscal second-quarter earnings, but revenue that rose from a year ago due in part to strong sales from its Windows operating system, and last fall’s release of Windows 8. Microsoft said that for the quarter ended Dec. 31, it earned $6.38 billion, or 76 cents a share, on revenue of $21.46 billion. During the year-ago period, Microsoft earned 78 cents a share on sales of $20.89 billion. Analysts surveyed by FactSet estimated Microsoft would report earnings of 75 cents a share on $21.56 billion.

“Microsoft said that its Windows division reported revenue of $5.88 billion, up 24% from a year ago, on strong acceptance of Windows 8, which was officially released on Oct. 26. Microsoft said that to date it has sold more than 60 million licenses for Windows 8. The company didn’t give any figures for sales of its highly touted Surface tablet, which was also released in October.

“Microsoft has become a technology mutual fund of sorts so earnings reports do not necessarily have a large impact on this technology behemoth. We feel MSFT will be the beneficiary of monies being re-allocated into stocks that lagged in 2012. We are buyers at these levels.”

Finally, with a yield of 2.7%, Cisco Systems (CSCO) might be attractive to some income investors who are also interested in capital appreciation. The Turnaround Letter Editor George Putnam wrote about the stock’s rebound potential in the September Dividend Digest, and it has appreciated approximately 8% since then. Here’s some of this recommendation:

“Cisco Systems, Inc. (CSCO) is a world leader in networking and other data transmission products. ... Cisco finally appears to be on the verge of breaking out of its more than decade-long doldrums. While the company has not given up on acquisitions entirely, it is now focused on building up its market-leading positions in some of the most important technology segments in order to build profits and cash flow. Moreover, the company is now committed to returning a significant portion of that growing cash flow to shareholders. ...

“The company’s balance sheet is impeccable, with more than $48 billion in cash and equivalents and relatively little debt. Cash flows are growing, and management is committed to returning 50% of free cash flow to shareholders through dividends and share repurchases. The company’s nearly 3% dividend yield puts it in the top echelon of dividend payers in the tech sector. Cisco has been like the sleeping giant of the technology industry since the Internet bubble burst in 2000. We now believe that the giant is awakening, and will give shareholders a good ride in the coming years. We recommend buying Cisco stock up to 26.”

Wishing you success in your investing and beyond,

Chloe Lutts

Editor of Investment of the Week

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Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.