I recruited Google’s Bard AI tool to help me to find 3 dividend stocks for the month of July. I might be imagining it, but Bard seems to have a bias toward tech. Take that to mean what you will but I’ve noticed that Bard certainly appreciates tech firms.
All of the stocks recommended are tech firms. However, the tech sector isn’t often associated with dividends. Dividends are paid from net profits and in the growth-first tech world that money is better directed toward finding new sales. Nevertheless, these tech shares do include dividends – with widely varying yields – and are worth exploring.
Me: Hi Bard, I am writing an article titled “3 Dividend Stocks That AI is Loving in July” Do you have any recommendations?
Bard: “IBM is a leading provider of cloud computing and IT services, and it is also investing heavily in AI. The company’s AI capabilities are used in a variety of products and services, including its Watson AI platform, its automation solutions, and its cybersecurity products. IBM has a long history of paying dividends, and it currently has a dividend yield of 5.3%.”
IBM (NYSE:IBM) is the stock to consider when looking for substantial income combined with tech growth opportunities. Its dividend yields more than 5%. That’s a high yield in most sectors and especially so in the tech sector.
Frankly speaking, I don’t understand IBM’s approach. It needs to find growth more than anything else. In that regard its dividend certainly doesn’t help. Its payout ratio is currently almost 3. That means IBM’s net profits cover roughly one-third of the money it has to pay to maintain its dividend. It has to divert money from elsewhere within the company just to pay it in other words.
Firm-wide revenues are far below where they were in 1999. They’ve declined precipitously since 2012. Maybe IBM should consider reducing its dividend in search of growth. As long as IBM’s revenues continue to fall, its share prices will too. A strong dividend cannot change that. Investors are happy to receive $6 every year in dividends annually, but it doesn’t matter if share prices drop by $30 over 5 years.
Bard: Microsoft is another leading provider of cloud computing and productivity software, and it is also investing heavily in AI. The company’s AI capabilities are used in a variety of products and services, including its Azure cloud platform, its Office 365 productivity suite, and its Bing search engine. Microsoft has a long history of paying dividends, and it currently has a dividend yield of 1.2%.
Microsoft (NASDAQ:MSFT) stock has been on a tear in 2023. Its AI strength is largely responsible for skyrocketing prices that have increased by nearly 50%. It also includes a modest dividend that is rarely discussed.
The company first initiated its dividend in 2003 and hasn’t reduced it since. I find this recommendation to be a bit puzzling as well. Microsoft is a great stock. Its dividend is rock-solid and there’s effectively no chance that it gets reduced. But most investors choose dividend stocks for the income they provide. That means a higher-yield dividend is preferable since it provides more income. Microsoft’s dividend yield is less than 1%. It’s effectively negligible.
If you’re going to buy MSFT stock, do it because of Office 365, Azure, their OpenAI investment and everything else that suggests the company will continue to grow rapidly–despite its already massive size. The dividend is a small bonus that comes as part of the package, not a reason alone to buy.
Intel (NASDAQ:INTC) stock is a buy for those investors who believe reshoring efforts will be successful. The company was once the biggest chipmaker in the world. It has since fallen behind. I’ll get to the reshoring bit in a minute but first I’d like to note that Intel’s dividend is not in good shape.
The company just reduced the quarterly dividend from 36.5 cents to 12.5 cents. It last reduced its dividend in 1994, but it seems 2023 will go down as the year that changes.
Before doing so, the company first chose to cut costs by reducing headcount. Only later was the dividend reduction announced. That’s exactly the kind of move that lets employees know where they stand in the pecking order. Yes, Intel is beholden to shareholders, but it ultimately reduced the dividend. As a result, management has done a fine job of making enemies within and without. The dividend was yielding an attractive 3.8%, but it’s now down to 1.2%. However, none of this even mentions the firm’s terrible fourth quarter.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.