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Tech Dividend Credibility on the Rise

For decades, the tech sector wasn’t viewed as a prime source of equity income. But that’s changed for the better in recent years, and that positive evolution is ongoing.

Indeed, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), both of which track the tech-heavy Nasdaq-100 Index (NDX), sport 30-day SEC yields of just 0.62%. However, those exchange traded funds have increasing dividend credibility.

Much of that legitimacy is tied to the Microsoft (MSFT) and Apple (AAPL). Those two companies are the top two holdings in QQQ and QQQM. And they are new dividend payers relative to counterparts in other sectors. But they’ve shown recent dedication to payout growth. Some other NDX member firms could get in on that act.

Tech Dividend Profile Improving

One of the more ballyhooed additions to the lineup of dividend payers in the QQQ and QQQM is Facebook parent Meta (META). The company initiated a quarterly payout of 50 cents a share last month when it delivered fourth-quarter results.

Travel reservations firm Booking Holdings (BKNG), which is the third-largest consumer cyclical holding in the Invesco ETFs, also recently initiated a dividend. The same goes for Salesforce (CRM). That stock isn’t a QQQ/QQQM member. But its dividend initiation shows there’s potential for more of the same throughout the tech and communication services sectors.

With news of Meta’s dividend, six of the top 10 holdings in QQQ and QQQM are now dividend stocks. The outliers, in order of weight in the ETFs, are Amazon (AMZN), Advanced Micro Devices (AMD), Tesla (TSLA) and Google parent Alphabet (GOOG).

Of that quartet, Alphabet and Amazon are the most likely to become dividend payers over the near term, but neither company has publicly said payouts are in the offing. Both have the free cash flow and balance sheet strength to not only initiate dividends, but grow those payouts over time.

Alphabet resides in the same sector as Meta — communication services. So the latter’s payout news has stoked speculation regarding when the former could follow suit.

“Google is a name that we have identified similar to Meta, where they have tremendous free cash flow generation and cash on the balance sheet, as well as buying back shares — but they haven’t initiated a dividend,” said Charlie Gaffney, managing director at Morgan Stanley Investment Management, in an interview with CNBC’s Darla Mercado.

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