Paying dividends

(By Richard Holway 4.00pm Sunday 2nd August 09) To accompany the post above on RCM Technology Trust, you might be interested in article in the Daily Telegraph this week – Technology funds in the spotlight again.

I was particularly interested in the following paragraph:

"Stuart O'Gorman, co-fund manager of the Henderson Global Technology Fund and New Star Technology Unit Trust, said US technology companies had very low debt levels. They also continue to be cash generative, which could mean dividend rises in the sector, as the culture of paying dividends becomes more common among them.

Microsoft, Oracle, IBM and Intel are among those that pay dividends. Walter Price, fund manager of the RCM Technology Trust, noted that the sector average yield was now 2pc whereas once it was practically zero."

They were both, of course, referring to US tech stocks. But the same applies in the UK. As the technology sector ‘matures’ there is no reason why investors should not choose tech for its dividend yield rather than just capital gain.

Ten years back only a small majority of UK tech stocks paid dividends. Now only a small majority don’t.

The companies that constitute the FTSE SCS Index currently yield 1.6% with Logica on 5.8% and Sage on 3.7%. (The yield for the Index is depressed because its two largest constituents. Autonomy still doesn’t pay a dividend and Invensys pays just 0.6%) Telecomms are even higher (mainly because their share prices have been hit so hard in the last year or so!) with an average yield of 6%. C&W on 5.9%, BT is on 5.1% and Vodafone on 6.3% - although we will have to see how long these are maintained.

These yields look very tasty when Bank Rate is still at 0.5%.