Why I Steer Clear of Tech Dividend Stocks

Some of the biggest names in tech started paying dividends this year. This includes Alphabet (GOOG), Meta Platforms (META), Salesforce (CRM), and Booking Holdings (BKNG).

If you’re not familiar with the last two, Salesforce is a powerhouse in customer relationship software that is used by some of the biggest brands around. Booking Holdings is the parent company of multiple travel-related websites including Kayak, Booking.com, and Priceline.

Investors and the financial media were excited about these new dividend announcements. I can’t join the hype as none of these new payments meet my minimum 3.5% annualized yield requirement. In fact, none of them pay over 1% annualized.

This is pretty standard for tech companies and it’s by necessity.

It goes back to the basics of why some companies pay a dividend and some don’t. Although this is a bit of a simplification, there are really only three things a company can do with its profit:

  1. Hold it as cash

  2. Reinvest it back into the business—R&D, pay down debt, etc.

  3. Reward shareholders with a dividend or a stock buyback