What Are Dividend Growth Tech Stocks?

Today’s Trackstar top five shows the dividend-paying tech stocks investors have been searching for most across the platforms of our 100+ financial media partners. 

Yep, Nvidia (NVDA) pays a dividend. And, all of a sudden, the artist formerly known as Facebook, Meta Platforms (META), pays one too. 

In a second, we’ll compare these five dividend-paying tech stocks, but first, what is a dividend growth stock, tech or otherwise? 

In one of the most popular Juices of 2023, we defined dividend growth stocks: 

While important when evaluating dividend stocks, growth here doesn’t refer to sales or profit growth. Instead, we’re dealing with growth in the dividend. 

Does a company increase its dividend annually?

Because Meta just instituted its dividend, we don’t have an answer to this question. However, with the first quarterly payment of $0.50 per share coming in late March (you had to be a shareholder of record, as of February 22 to qualify for this payout), the company says it intends to pay a dividend going forward. The consensus is that Meta will increase this payment annually. If it does, it officially becomes a dividend growth stock. 

It’s unlikely Meta goes the route of Nvidia, paying what amounts to a symbolic dividend. Nvidia hasn’t increased its paltry payment of $0.04 per share (per quarter) since 2018. Prior to that, the company increased its dividend by, on average, 13% annually. When it stopped upping its dividend payment, NVDA ceased being a dividend growth stock. 

However, you would have been better off buying Nvidia stock and throwing the dividend in the garbage than you would have been in most any other stock over the last year. 

This underscores the reality that you don’t buy a stock simply because it pays out. You must balance dividend income with stock price appreciation. 

Over the last year, NVDA has returned roughly 235%. Over the last five, 1,915%. Meanwhile, Meta has generated returns of 185% and 198% over the same periods. Both not taking dividend reinvestment into account. You don’t own NVDA or META for the dividend or dividend growth. You own them for the parabolic stock prices. Any cash they throw your way is merely icing on the cake with a cherry on top. 

This applies especially to Nvidia. Because once you start dealing with a mature dividend payer that is also a dividend growth stock and you compare that stock to, say, Meta, things look a lot different.

Maybe those concerns some investors had when Apple started paying a dividend again weren’t unfounded after all. Growth at the company has definitely slowed even as the dividend payment has steadily, albeit modestly increased annually. By comparison, you have to be impressed by and happy with Microsoft if you’ve been a shareholder for the last five years or more. 

Intel, for its part, has been a relative mess, cutting its dividend in 2023 amid a stock price that rebounded over the last year, but has done little for long-term investors in recent times. 

Which brings us back to Meta and Nvidia. 

Nvidia halted dividend increases in 2018. And it did so because it was investing heavily in its growth in a semiconductor space that has exploded. A space it now leads. So, here again, the balancing act of growth in revenue and profits versus growing the dividend at the company. And the balancing act of buying stocks that go up the most versus collecting dividends that increase as an investor. 

We’ll have to see where Meta ends up. As it stands, its current dividend accounts for just 12% of earnings, compared to 16% and 28% for Apple and Microsoft, respectively, and just 2% of earnings for Nvidia. This number means Meta is still reinvesting for growth at the company at the same time as sustaining and probably increasing its dividend payment. For now, a best of both worlds situation. 

The Bottom Line: As we noted at the end of that 2023 Juice, “no company, no stock, no investing strategy is immune to things going not quite as planned or anticipated.” Intel isn’t alone with its troubles. Disney (DIS) and AT&T (T), once dividend growth stalwarts, both ran into similar trouble. 

Diversification matters. Across not only assets, but approaches. The Juice will never advocate a 100% dividend growth-focused approach. There’s too great of a chance you’ll pass on an NVDA simply because of a stagnant dividend that says absolutely nothing about the health of the company or its stock.

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