These stocks should appeal to investors seeking passive income and growth.
Investors rush to buy dividend stocks for one big reason: These players offer recurrent income regardless of the direction their share prices or the entire market is taking. So, even in difficult times, investors can count on returns from these investments. On top of this, companies that pay dividends generally have the financial strength to do so, another comforting point for investors.
You’ll find dividend stocks across industries, but high-growth players like technology stocks traditionally aren’t known for standing out here. They tend to pour extra cash back into their businesses to boost growth rather than return the surplus to shareholders. But times are changing, with more and more technology players balancing their strategies to allocate a portion of cash to growth and a portion to dividend payments.
Of course, you’ll still find the strongest dividend prospects from companies in other industries, like healthcare for example. But tech companies today offer you a new way to approach dividend investing — one that blends growth with passive income. Two companies in particular represent this new face of dividend stocks and make great buys right now. Let’s check them out.
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1. Alphabet
Alphabet (GOOG -1.94%) (GOOGL -2.03%) delighted investors last week when it announced its very first dividend along with a huge share buyback plan. The owner of Google Search said it would start paying a quarterly dividend of $0.20 a share, and the company unveiled a $70 billion share repurchase program.
All of this allows investors to share in Alphabet’s successes quarter after quarter. At the same time, Alphabet continues to win when it comes to growth, and here it has an impressive track record. The company went from $100 billion to more than $300 billion in annual revenue over only the past six years thanks to Google Search. Advertising on that platform makes up the lion’s share of Alphabet’s revenue, and with the company’s commitment to artificial intelligence (AI) as a way to make search better and better, ad revenue could even grow from here.
Alphabet also is progressing in growing its other businesses, and it expects YouTube and Google Cloud to achieve a combined annual run rate this year of more than $100 billion. And in the company’s earnings call last week, it spoke of “clear paths” to monetizing AI in ads, cloud, and through subscriptions.
All of this makes Alphabet look like a fantastic buy, with the shares trading for only 23x forward earnings estimates, down from more than 30 last year.
2. Meta Platforms
Meta Platforms (META -0.57%) announced its first ever dividend earlier this year, paying $0.50 to shareholders on a quarterly basis. At a dividend yield of 0.45%, its yield comes in lower than the S&P 500’s 1.35% yield, but Meta’s combination of recurrent payments to investors as well as earnings growth make it a compelling growth/passive income story.
Like Alphabet, Meta offers investors a track record of earnings growth and a commitment to the promising technology of AI that could increase its revenue down the road. Meta shares slipped last week when chief executive officer Mark Zuckerberg said that generating significant revenue from its AI investments would take time, but I see this as a buying opportunity. It’s important to keep in mind that, as investors, we’re more likely to win by holding on to quality companies over time, so if we buy Meta today, we can accompany it along this AI growth path — collecting passive income along the way — and potentially benefit as the company progresses.
More than 3.2 billion people use at least one of Meta’s social media apps daily, and the company spoke of “healthy growth” in the U.S. in the recent quarter. Meta is the global social media leader, with a solid moat, and that should keep advertisers — its main source of revenue — coming back and helping the company continue to report billion-dollar earnings.
Today Meta trades for only 22x forward earnings estimates, a steal for long-term investors looking for a newish kind of dividend stock, one that offers passive income along with potentially explosive growth.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.