Tech stocks are notoriously stingy dividend payers. Typically,
these companies use earnings to fuel growth and to keep up with the
competition, not to pay shareholders. In fact, the tech-rich Nasdaq
Composite Index yields just 0.8% -- less than half of what the
S&P 500 yields.
There is a small group of tech stocks that do pay nice dividends.
These companies aren't from some obscure corner of the tech world.
In fact, they're software companies whose business models allow
them to afford both growth and distributions to shareholders.
In the case of this little company, moreover, shares haven't fully
recovered from the beating they took in 2008, and its earnings are
just beginning to. Despite the weaker results, the company hasn't
lowered its dividend, and earnings still support it.
Wayside Technology Group (Nasdaq: WSTG)
distributes, sells and markets software from, for example,
Intel (Nasdaq: INTC)
Quest (Nasdaq: QSFT)
, to software development and information technology professionals.
The $42 million New Jersey-based company has been around since 1982
and has been listed on the Nasdaq since its 1995 initial public
Wayside pays quarterly distributions that have increased +50% since
2003. The current distribution is $0.15 and has been at that level
since 2007, giving the company a forward and historical yield of
7.0%. The company's 2009 earnings of $0.65 per share cover the
In 2009, Wayside's net income totaled $2.9 million, down -9.5% from
2008. This was due to a -15.9% drop in sales. Wayside says that the
economic downturn was causing current and potential customers to
delay or reduce technology purchases, which resulted in longer
sales cycles and slower adoption of new technologies.
But there's a silver lining. Fourth-quarter 2009 sales topped the
same period in 2008, increasing +6%. This was the first time
quarter-over-quarter sales rose in 2009.
In addition to help from the economy, Wayside's management plans to
grow the business by investing in information technology and
marketing, and expanding its sales team and software offerings.
The company should have no problems finding the capital to
implement its strategy. Wayside has a solid balance sheet . It has
no debt, $3.44 in cash per share, and a book value of $5.20 per
The company's shares have underperformed the market during the past
year, setting the stage for a possible comeback. While the S&P
has gained +55% during the past twelve months, Wayside has only
gained +32%. But since the beginning of the year, it's begun to
outperform, returning +10% since January 1st, compared with the
S&P 500's +4%.
Despite these recent gains, the shares are still undervalued --
perhaps because no one follows this company. Wayside's current
dividend yield of 7.0% is not only about +15% higher than its
five-year average, but also more than +300% higher than the S&P
500's current average yield of 1.8. Its price-to-earnings ratio
(P/E) of 13.5 is -35% lower than the S&P 500's average P/E of
21 and -20% lower than its five-year average P/E of 17.
One caveat: Wayside is a small company whose shares are thinly
traded, which could lead to volatility. The company's average daily
volume is just 6,000 shares --
Microsoft (Nasdaq: MSFT)
, by contrast, trades about 50 million shares daily. But if you're
in the market for a small-cap dividend payer with upside potential,
then you should consider this high-yielding tech stock.
P.S. If you're looking for both high yields and enormous capital
gains, then you need to learn more about our "Income Security of
the Month" for March 2010. With a strong history of paying
increasing dividends, this stock is currently yielding an
eye-popping 10.2%. That's double the 10-year Treasury yield, nearly
three times what "AAA"-rated corporate bonds pay you and five times
what you get from the S&P 500!
Disclosure: Anthony Haddad does not own shares of any security
mentioned in this article.