Fund for Tech Stocks That Pay Dividends

published 30 December 2013

On a relative basis, it has been a subpar year for big tech. Over the past year, the group rose 23%, but that lagged Standard & Poor’s 500-stock index by 7 percentage points. That’s one reason tech stocks, which historically have been more expensive than the broad stock market, are looking like bargains these days. The typical large tech-company stock trades at 14 times estimated 2014 profits, while the S&P 500 sells for 15 times earnings.

Technology Select Sector SPDR (symbol XLK) offers broad exposure to technology, but it’s not exactly a pure play on the sector. The exchange-traded fund tracks an index of 72 established firms in the S&P 500, including six telecom companies. The phone companies help boost the ETF’s dividend yield to 1.7%, close to the 2.0% yield of the S&P 500.

Because the ETF is heavy on large companies, the fund hasn’t been as hot as Internet-focused ETFs, which invest in faster-growing firms. Some of those ETFs have gained upward of 40% over the past 12 months, boosted by big gains from the likes of Netflix (up 348%) and Pandora (up 226%). But Technology SPDR hasn’t experienced the same ups and downs, either—over the past five years, it has been about 25% less volatile than the PowerShares Nasdaq Internet ETF.

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In keeping with the benchmark it tracks, the ETF is rebalanced quarterly. The index holdings are weighted by market value, but that rule goes by the wayside if a stock exceeds 25% of the fund’s assets.

Tan joined Kiplinger in June 2012 from Bloomberg News, where she was a reporting intern covering mergers and acquisitions and IPOs in New York. Prior to that, she worked as a production intern at CNN in Washington, D.C., where she assisted with political research and live broadcasts. She also covered financial regulation, including the Dodd-Frank Act, as a reporter for the Medill News Service. Before that, she wrote about economics and commodities in Chicago. She has written for the New York Times, MarketWatch, Businessweek.com, United Press International and the San Francisco Chronicle. She holds a BBA in finance from the University of Michigan and an MS in journalism from Northwestern University.