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Technology isn’t usually a space investors associate with dividends.  While this has historically been the case, dividend payments have been cropping up in recent years, with notable participants Microsoft (MSFT - Free Analyst Report) and Intel (INTC - Free Analyst Report) initiating such distributions as their businesses matured.  While most companies in this space still don’t pay dividends, there are a few that have handsome distributions on both an absolute and relative basis.

For example, EarthLink (ELNK) and United Online (UNTD), with denizens of Value Line’s Internet industry, sport dividend yields above 7%.  Paychex (PAYX), in the Computer Software and Services industry, has a yield of around 5%.  These are noteworthy yields in a time when interest rates hover near historic lows. 

To ferret out some more companies in the technology space that have material dividends, we screened the Computer Software and Services, Computers and Peripherals, E-Commerce, Electrical Equipment, Electronics, Entertainment Technology, Foreign Electronics, Healthcare Information, Information Services, Internet, Semiconductor, Semiconductor Capital Equipment, and Wireless Networking industries.  First we looked for companies with dividend yields above 1% and then, to help ensure the dividends were sustainable, we limited the results to those firms with long-term debt as a percentage of total capital below 50%. 

The screen, simple as it is, netted 50 companies with yields ranging from just about 1% to above 7%.  Long-term debt to total capital ranged from 0% to near the 50% limit.  There was no particular correlation between debt and distribution, as United Online had one of the highest yields and was near the high end on the debt level, too.  Meanwhile, International Business Machines (IBM - Free Analyst Report) had the largest long-term debt burden and a dividend yield close to the low end of the scale.  Of note, however, is the fact that yields drop quickly toward the market average—not surprising given the nature of the industry.

Below is the list of the 10 highest dividend yielding tech stocks to pass this screen using data as of July 8, 2010.

Company

Ticker

Industry Name

Dividend Yield

EarthLink, Inc.

ELNK

Internet

7.97%

United Online

UNTD

Internet

7.11%

Paychex, Inc.

PAYX

Computer Software/Svcs

5.00%

Microchip Technology

MCHP

Semiconductor

4.90%

Taiwan Semic. ADR

TSM

Semiconductor

4.09%

Intersil Corp. 'A'

ISIL

Semiconductor

3.98%

Hubbell Inc. 'B'

HUB/B

Electrical Equipment

3.70%

Computer Prog. & Sys.

CPSI

Healthcare Information

3.55%

STMicroelectronics

STM

Semiconductor

3.49%

Automatic Data Proc.

ADP

Computer Software/Svcs

3.43%

 

EarthLink, Inc. (ELNK) is an Internet Service Provider (ISP).  It offers premium dial-up and broadband (DSL, Cable) access services, as well as discounted dial-up service through its PeoplePC subsidiary. EarthLink also markets related Internet services, such as Web hosting and advertising. EarthLink, Inc. was formed in 2000 by the merger of EarthLink Network and MindSpring Enterprises. Website: www.earthlink.net.

Paychex, Inc. (PAYX) is primarily engaged in providing computerized payroll-accounting services, salary deposit services, automatic payroll-tax payment, tax return filing services, and human-resource products and services to more than 570,000 mostly small- to medium-sized (10 to 200 employees) businesses. The company operates approximately 100 offices, located in 36 states and the District of Columbia. Website: www.paychex.com.

STMicroelectronics (STM) is a large multinational firm that designs and manufactures semiconductors. It is active in the telecommunications, networking, automobile, industrial products, and consumer devices markets. The company offers more than 3,000 products to over 1,500 customers.  Its top 10 customers accounted for roughly 50% of 2009 sales, including Nokia at 16%. Sales by product segment in 2009 were: auto, computer, and telecom., 38%; industrial, 31%; wireless, 31%. Website: www.st.com