3 High-Yielding Tech Stocks to Beat the Market

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Many investors, including myself, romanticize technology companies. But the truth is that companies at the cutting edge don't always translate into good investments. A single hiccup in the tech supply chain can lead to unmet demand, flat earnings, or flawed products. That's why it's important to find tech stocks that can stand the test of time. Here's a look at three tech titans that are not only leaders in their respective industry, but also reward shareholders with a healthy dividend.

Competitive gains
As the world's largest maker of hard disk drives, Seagate Technology (NAS: STX) products can be found in notebook and tablet computers, video games, and most consumer electronics sold around the world. The computer hardware stock has a dividend yield of 3.79%, with a 30.28% payout ratio.

Seagate dodged the bullet of devastating floods in Thailand last year. Its factories in the region remained fully functional while competitor Western Digital (NAS: WDC) , which doesn't pay a dividend, was forced to cut capacity. As a result of shortages, the price of hard drives increased -- to Seagate's advantage.

The Silicon Valley company tripled its second-quarter profit on price increases, shipping 47 million drives for the period. In a surprising twist, Seagate recently locked down its largest customers with binding long-term purchase agreements. Customers are willing to enter longer contracts with Seagate because they want to avoid the risk of not getting enough supply of hard drives. The positive momentum should carry Seagate through 2012, while supporting its leading market position for years to come. 

Cash is king
Another PC-reliant stock to make the list is Intel (NAS: INTC) . The world's largest chip maker shines with a 3.14% dividend yield and 31.44% payout ratio. Because Intel already dominates the PC market, the company increased its presence in other sectors. A recent move into the high-growth areas of cloud computing and mobility could put Intel on the fast track to dominating new markets.

Intel's fit balance sheet and strong cash flow mean the company will have no problem increasing its dividend in the years ahead. In the most recent quarter, Intel had cash per share of $2.91 on hand. I'm such a fan of Intel's sustainable dividend that I'm giving the stock at outperform rating on my CAPS account -- and you should, too.  

Change of heart
In screening for this report I really wanted to like Garmin (NAS: GRMN) and its sky-high dividend yield of 3.63%. The stock has remarkable cash flow and $7.53 cash per share. However, Garmin's payout ratio of 79.5% concerns me. On a gut level, I'm also worried that Garmin's navigation services are becoming obsolete.

Applications from Apple have turned our smartphones into GPS devices. And as my Foolish colleague Dan Caplinger pointed out, newer model cars will hit the market with built-in Internet connections that threaten Garmin's dependence on the automotive navigation market.

A better choice, in my opinion, is none other than Microsoft (NAS: MSFT) . Predictable? Maybe, but Microsoft's near-perfect balance sheet and reoccurring revenue from corporate spending on software and services prove the company still has what it takes to be an industry leader.

While Microsoft's cash hoard hardly rivals that of Apple's near $100 billion, it does return some of that cash to shareholders in the form of a 2.65% dividend yield. Of the three high yielders chosen here, Microsoft is the most sustainable, with a payout ratio of 25.77%.

In addition to its modest payout ratio, Microsoft boasts $6.17 per share in cash, which is a win in my book. Plus, I think the software giant might just surprise investors in the year ahead (in the most rewarding way).  

What you've been waiting for
If you're still on the fence about these tech stocks and want a investment idea packed with growth potential, then I invite you to read this special free report from The Motley Fool: "The Next Trillion-Dollar Revolution." In it, you will learn about an investing opportunity making not billions, but trillions. Click here to get your free report now, while it's still available.

At the time this article was published Fool contributor Tamara Rutter owns shares of Apple. Follow her on Twitter, where she uses the handle: @TamaraRutter. The Motley Fool owns shares of Microsoft, Western Digital, Apple, and Intel. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Intel; and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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