The more mature technology companies, such as Apple, Cisco and Microsoft, are all paying cash back to investors. |
Technology stocks have
never been the best friend of the equity income investor. Until the financial
crisis struck in 2008, the yield on the MSCI Global Technology index remained
resolutely below 1 per cent, with many tech companies simply not having the free
cash flows to pay meaningful dividends. Those that did generally preferred to
splurge on acquisitions as they chased market share in a frenetic land grab.
And even after the
global stock market sell-off briefly pushed yields above 2 per cent in late
2008 and early 2009, they sank back to little over 1 per cent in 2010.
However, yields have
since climbed back above 1.5 per cent and some equity income fund managers, at
least, are starting to take note.
“Traditionally,
technology companies never really paid
dividends, so we were unable to make investments, resulting in us being
structurally underweight technology for a long time,” says Nick Clay, co-manager of the
£4bn Newton Global Higher Income fund.
“However, of late some
of the more mature technology companies have started paying dividends and are
increasingly doing so. You have the likes of Apple, Cisco and Microsoft, which
are all paying cash back to investors.”
Jill Cuniff, president
of Seattle-based Edge Asset Management, which manages $7bn in equity income
funds, adds: “Back during the tech boom a lot of people thought these companies
could not grow and [simultaneously] pay a dividend.
“We
don’t think that is true. A lot of them are sitting on a lot of cash. M&A
[merger and acquisition] activity has slowed down, therefore a lot of that
[cash] is flowing back to shareholders in terms of dividends and buybacks. We
don’t believe this is temporary.”
Mr Clay’s Newton fund
now has a higher allocation to technology stocks than at any point since its
launch in 2005, with its 8.1 per cent weighting only a little below its
benchmark of 9.5 per cent.
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