Finding Dividends In An Unexpected Place

Looking for strong dividend stocks? Some top fund managers are finding them in an unlikely place: the tech sector.

Bill Nygren, for one, thinks the tech sector is a good spot for dividends. He says many are looking at a lot of tech firms in the wrong way — while tech companies often conjure images of explosive growth and high valuations, Nygren says many today remind him of the consumer product companies of the 1980s because of their moderate top-line growth and relatively cheap shares, according to CNBC’s Constance Gustke. And with many cash-rich tech companies returning cash to shareholders, “It’s a good place to look for dividends,” Nygren said.

Tech firms have been growing dividends in recent years, and another top performing fund manager, Diane Jaffee, says they have a lot more room to continue doing so. At the end of 2013, she says, the sector’s average payout ratio was 20 percent of cash flow, vs. 36 percent for the S&P 500. She likes dividends over stock buybacks in tech stocks “We believe that dividends are incredibly important,” she said. “They help make technology stocks less volatile.”

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