How Tech Firms Compare to Traditional Dividend Payers

As part of etf.com's Dividend Series, we explain how some tech companies fall into the dividend-aristocrat category.

The traditional idea of a dividend-paying company is one that operates in a long-established industry without much growth, such as utilities or energy.

Yet technology companies also offer dividends. Microsoft and Apple have long offered dividends, and just recently, Meta Platforms announced it would pay dividends. Not only are more tech companies paying dividends, some fall into the dividend-aristocrat category, defined loosely as a company that annually increases its distributions. As more tech companies start paying dividends, it may change investors’ concept of a dividend company. 

“The traditional thinking is that you're only really offering a dividend because you have nothing else to do with the money…. So to be a technology or a growth the type of company and have (dividends) as a component is somewhat interesting,” says Chris Shuba, CEO at Helios Quantitative Research. 

There are two exchange-traded funds following the dividend-aristocrat theme, the $11.7 billion ProShares S&P 500 Dividend Aristocrats ETF (NOBL), and the $268.8 million ProShares S&P Technology Dividend Aristocrats ETF (TDV).

NOBL has an annual expense ratio of 0.35%, while TDV costs 0.45%. Both are equal-weighted and index-based, following the S&P 500 Dividend Aristocrats and S&P Technology Dividend Aristocrats, respectively. To be considered for the indexes, companies must post annual dividend growth. TDV requires seven years, while NOBL requires constituents to annually increase distributions for at least 25 years.

TDV Heavily Weighted to Tech 

Technology comprises 88.6% of TDV’s index, with small holdings in financial services and industrials, which is why investors will see tech-adjacent names such as Visa, MasterCard and Accenture. NOBL is more diversified between consumer defensive at 24.2%, industrials at 23.9%, and about 10.5% each in healthcare, basic materials and financial services. 

Simeon Hyman, global investment strategist at ProShares, says investors can consider TDV to “maintain prudent exposure to the technology space” since it holds high-quality mature technology companies versus the S&P 500. He says since NOBL and TDV have little overlap, they can be used together.

Shuba says an ETF such as TDV is a way to approach dividends, but not have as much disconnect between the S&P 500. The broader index is about 30% weighted to tech. It also gives investors some market-cap diversification as it holds more mid-cap size companies than NOBL or the S&P 500.

“It’s a great bridge holding, something that sits in-between growth and value. It’s the way that the S&P has been, but the S&P has drifted more and more towards tech,” he says. 

A key reason why investors own dividend ETFs is the distribution, and TDV has a dividend yield of 1.74%, while NOBL’s yield is 2.52%. Total return is also important, and in 2023, TDV’s total return was 27.3%, while NOBL was up 8.1%. Comparatively, the SPDR S&P 500 ETF Trust (SPY) gained 26.2% in 2023, and Invesco QQQ Trust (QQQ) rose 54.9%.

Shuba says he “loves the idea” of a fund like TDV, but he also has reservations, noting how much investors miss the upside and that the dividends aren’t particularly high. He also says QQQ has a dividend yield of 0.84%. 

“Those (dividends) really aren’t knock your socks off,” he says. “Am I wiling to give up all the upside of a QQQ?” 

With bond yields high, such as the 4.7% Securities and Exchange Commission yield on a bond fund such as iShares Core 1-5 Year USD Bond ETF (ISTB), it’s hard to be a committed dividend investor.

“It's a really hard place to be a dividend value stock investor right now, unless you’re a ride-or-die mean reversion/valuation kind of person. If you're that way, you've been rewarded for that (position) certainly during the COVID era,” he says.