Technology isn’t usually a space investors associate with dividends. While this has been the case historically, dividend payments have been cropping up in recent years. Although most companies in this space still don’t pay dividends, there are a few that have handsome distributions on both an absolute and a relative basis.

We started screening by only including the Computer Software, Computers and Peripherals, Electronics, Entertainment Technology, Foreign Electronics, Internet, Semiconductor, and Telecom Equipment industries, which resulted in a field of 182 companies. This list was narrowed down to 59 after we required the payment of an ongoing dividend. Finally, in the interest of eliminating the more risky holdings, we necessitated a debt to capital ratio below 50% and Price Stability Rank in the 75th percentile and above. The resulting list (below) featured 17 names, of which, we highlighted Qualcomm (QCOM).

Qualcomm

Qualcomm is a leading fabless (does not own or operate foundries for the production of silicon wafers) semiconductor designer and licensor of CDMA-based intellectual property to phone makers.

In 1989, the company introduced CDMA or Code Division Multiple Access, one of the main technologies used to transmit a wireless user’s voice or data over radio waves using a public cellular wireless network. Cellular network technologies tend to build on prior iterations, which is why all phones using the current 3G wireless standards (WCDMA, HSDPA, HSUPA,  HSPA+, etc.) as well as 4G Long Term Evolution (LTE), pay a low single-digit percentage of revenues to Qualcomm. This is why the company's expectations for average selling prices and overall 3G handset volumes are closely followed.

In addition to collecting royalties on its IP, Qualcomm is also the dominant supplier of cellular modem (a.k.a. baseband) chipsets. According to Strategy Analytics, Qualcomm boasted ~45% of this market in 2011, followed by Intel (INTC – Free Intel Stock Report) with 15%. Its Gobi modem technology is also featured in its Snapdragon S4 line of chipsets, most of which combine a multi-core Krait application processor (CPU), a Adreno graphics processor (GPU), and Wi-Fi/Bluetooth/GPS connectivity silicon. For the CPU market in general, Qualcomm had around 44% in the first quarter, followed by Samsung with 27% and Texas Instruments (TXN) with 7%. The top five was rounded out by Broadcom (BRCM) and Chinese supplier MediaTek.

Qualcomm is currently calling for chipset volumes to be 14% higher year over year in 2012. Part of this should come from the success of its S4 line, which has secured a number of design wins recently. In fact, demand has been so strong that the company will not be able to meet all of it with current capacity. The company has hired the services of four additional foundries to meet demand, but growth in the September quarter may still be stunted due to capacity shortages. We expect a sizable product refresh cycle to drive holiday sales following the recent lull. This wave of new devices should be led by Apple’s (AAPL) recently released iPhone 5, which contains QCOM’s MDM961 modem. Although this already-popular device will surely benefit the bottom line, Qualcomm’s size and diverse customer base limits the downside risk presented by any single phone maker, regardless of its market share.

Qualcomm’s current dividend yield clocks in at 1.55%. Although this is below the 2.3% average for dividend paying stocks in The Value Line Investment Survey, it is a respectable yield compared to others in the technology space. The company’s high marks for Price Stability and its number one market position in various wireless silicon technologies may interest conservative investors looking to add a quality tech company to their portfolio. 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.