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Compared to other sectors, technology isn’t often readily associated with dividends. Low yields throughout the group confirm as much as the S&P 500 Information Technology Index and the tech-heavy Nasdaq-100 Index yield just 0.90% and 0.69%, respectively.
Those aren’t impressive numbers, particularly when considering high interest rates have pushed yields on no-risk cash instruments to the upside. Admittedly, that’s not an apples-to-apples comparison and it’s one that doesn’t accurately highlight the technology sector’s increasing dividend prominence.
In recent years, the group has been one of the leading contributors of S&P 500 payout growth. Owing to robust profitability and strong balance sheets, mature technology companies have ample room to boost dividends. Many have already done just that and will continue doing so.
Today, the sector is the largest dividend payer in dollar terms with the help of Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), among others. That's a plus for advisors serving income-hungry clients. Fortunately for advisors and clients alike, there are efficient avenues for accessing the theme of rising tech dividends and these options don’t involve stock picking. We’ll examine one here.
To TDV for Tech Dividends
For advisors seeking a basket of cream of the crop, a good place to start is with the S&P Technology Dividend Aristocrats Index – the technology offshoot of the popular S&P 500 Dividend Aristocrats Index. Due to the fact that the marriage of tech and dividends is a relatively new phenomenon, the tech aristocrats benchmark requires a minimum payout increase streak of seven years while the watermark for the standard aristocrats index is a payout increase streak of 25 years.
The ProShares S&P Technology Dividend Aristocrats ETF (TDV) is the exchange traded fund that tracks the aforementioned tech index. TDV turned three years old last November and had nearly $112 million in assets under management at the end of 2022, indicating the ETF is neither new nor small. It also carries a five-star rating from Morningstar, indicating it checks some of the superficial boxes that many market participants focus on when evaluating ETFs. However, there are more compelling points for advisors to consider.
“The S&P Technology Dividend Aristocrats ETF’s well-established technology-related companies have grown their dividends for a minimum of seven consecutive years. As a group, they’ve demonstrated quality characteristics like strong balance sheets, solid fundamentals and long histories of profit and growth that make them especially attractive to investors,” according to ProShares research.
Another benefit offered by TDV is lack of concentration risk. Theoretically, an investor would likely expect that Apple and Microsoft would command massive percentages of a strategy such as TDV. In reality, the fund is basically equally weighted and its largest component commands just 3.17% of the index.
Hard to Argue with TDV Results
Of course, past performance is never a promise of future returns, but it’s hard to argue with the results TDV generated in its first three years on the market.
“The results speak for themselves. TDV was the top-rated fund in Morningstar’s technology category in 2022, and the number two-ranked fund over the two-year period ended 12/31/2022. Since inception on 11/5/2019, TDV has delivered strong ‘all weather’ performance during up and down markets and ranks in the top 15th percentile of all technology ETFs and funds,” concludes ProShares.
Add to that, some TDV member firms are seen as undervalued today, indicating the ETF could be viable consideration for client portfolios this year.
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