Are Big Tech players the next dividend stalwarts?

Meta and Salesforce are the latest companies to announce dividend payments.

Sam Witherow, manager of the JPM Global Equity Income fund, said that while his fund has long combined companies which pay out a dividend with those which offer capital growth, the nature of some of these companies is changing.

He said: "More recently we have seen signs that internet/media companies are starting to warm up to dividends with Meta initiating a meaningful $6bn annualised payout (on top of substantial buybacks). This is a natural evolution as business models mature and efficiency gets prioritised over “moonshot” capital spending. We would expect some of the other dividend holdouts to eventually follow-suit."

Meta is only the third of the magnificent seven to pay a dividend and the average yield on the three that do (Meta, Microsoft and Apple) is 0.6 per cent, so it may be a bit premature to pop open the ‘income’ champagne.

But some have pointed out that it does beg the question of the compatability of income with an objective of delivering capital growth.

Witherow said: "We are seeking to provide clients with both a yield premium to the market and a dividend growth premium to the market at the aggregate portfolio level. It’s the combination of the two characteristics that typically leads to the best risk-adjusted returns.

"To deliver this we have always looked to have diversified exposure across global industries including traditionally growthier industries like consumer discretionary or tech."

Many companies in the tech space are growing at very fast levels, and with lots of cash on the balance sheet they can become balance sheet inefficient – therefore paying out some of the excess cash can keep them nimble.

Richard Philbin, Hawksmoor

Sam Buckingham, investment manager at Abrdn Portfolio Solutions, says growth stocks which pay smaller dividends can be helpful for income funds to increase diversification across sectors and factors.

He says: “These stocks tend to have lower initial dividends, but with the potential to grow over time. This can balance well in a portfolio when combined with more traditional dividend stocks that pay higher initial dividends (with lower growth), such as utility stocks.

“You should not expect high growth stocks, though, to ever be a dominant component of an income fund.

“If a stock is growing at above-average rates then there should be a preference for management to re-invest in the business at these attractive rates of return, rather than paying out meaningful dividends and starving it of capital for re-investment.”

As things stand, the IA Global sector has a higher exposure to tech companies than the IA Global Equity Income sector. So far, so unsurprising - though the equity income sector still has tech as its highest single sectoral exposure.