Technology companies rated by Moody’s are expected to pay out $44.4 billion to shareholders this year, up 35% from last year.And after its recently announced 15% dividend increase, Apple will pay out more than $11 billion in 2013, the most of any company in the US non-financial sector.
The top 10 US tech companies will account for 84% of the sector’s dividends this year, with Apple, Microsoft and Intel expected to comprise 54% of the total. Apple will account for 48% of the sector’s dividend growth, while Microsoft and Cisco combined will account for another 16%.
In addition, more Moody’s-rated technology companies are paying dividends. The number had increased to 31 at the end of 2012, from 29 in 2011 and 20 in 2007.
We believe the increasing number of dividend-paying tech companies reflects the strength of these firms’ business models, management confidence in cash flow generation prospects and, in some cases, pressure to return capital to shareholders.
Rising dividend payments won’t affect companies’ credit ratings, Moody’s notes. Although technology firms have been implementing and raising dividends slightly ahead of growth in cash flow generation, dividend payments relative to cash flow average a low 20%, compared with 50% for non-tech industries.
And Moody’s expects that most dividend-paying tech companies will keep payout ratios below 30% due to tax-inefficient access to overseas liquidity, operational requirements and company-specific strategic considerations. Many technology firms keep the bulk of their cash overseas and if this were used to pay common dividends, they would be subject to US repatriation taxes.
Overall, US tech companies are well positioned to support dividend payments in the event of economic downturn, Lane says. “Stable cash flows and strong liquidity should enable the dividend-payers to weather potential financial or geopolitical shocks to the global economy.”