Quick -- what S&P sector pays the most dividends?

If you said consumer staples -- you got it wrong!

By InvestorPlace Jan 17, 2013 1:12PM

iplogoDollar sign on keyboard CorbisBy Marc Bastow

Retirement fans, I bring you some important news on a trend about tech companies and dividends. We've been reporting on this from several angles, most recently with a look at some "stodgy" tech stocks (read on InvestorPlace here and here).

But now it's official: Tech companies pay out more in dividends than any of other sector in the S&P 500. Indeed, as Floyd Norris pointed out Friday in The New York Times, "S&P Dow Jones Indices reported that in 2012 the technology sector accounted for 14.7 percent of all dividends paid to investors in the 500 companies, up from 10.3 percent in 2011 and from a little over 5 percent back in 2004."

The tech sector replaced consumer staples, which includes stalwarts like Procter & Gamble (PG), Coca-Cola (KO), PepsiCo (PEP) and Wal-Mart (WMT), as the largest payer of dividends. Consumer staples had held the crown for the past three years.

For years, technology companies were mostly holdouts to the dividend game, traditionally retaining earnings and plowing them back into research and development and capital spending. But with companies like Microsoft (MSFT) and Intel (INTC) showing signs in the late 1990s and early 2000s of corporate maturity, slower growth rates and rising levels of cash, change -- albeit slowly -- came to the sector. Today, 60%, or 42 of the sector's 70 stocks, are dividend payers. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

Of course, what put the sector over the top was Apple's (AAPL) decision to join the party in 2012 with a fairly generous $10.60 annual dividend. Once again, thanks very much, Mr. Cook.

Now a word of some caution: Don't confuse dividend payouts with dividend yields. The tech sector still lags consumer staples and the overall S&P 500 in dividend yield. Tech's yield at the end of 2012 came in at just over 2%, while the consumer staples logged in at nearly 3%. If you want to chase some yield, consumer stocks might just be your ticket.

However, the good news for investors interested in tech is twofold: 1) any number of companies that already pay dividends have plenty of room to hike those payouts; 2) several tech companies -- most notably Google (GOOG) and Amazon (AMZN) -- don't pay any dividend at this point, but I suspect they'll eventually give in to pressure from investors and institutions and start doing so.

The point here is that tech stocks should be a part of a dividend portfolio aimed at steady income streams over the long term as much as railroads, healthcare, utilities and any other sector. They're no longer the unloved segment that won't pay investors for holding long-term. View them instead as the new breed of buy-and-hold bedrock retirement investments.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long AAPL, INTC and MSFT.

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