Technology Sector: Expertise, Size And Reputation Are Its Best Assets

I’ve discussed my Top 3 Canadian SaaS Tech Stocks in this video below:


Greatest Weaknesses

It is usually rare to find tech stocks with a high dividend yield. If you are looking for tech stock with a 6% yield, you will not find them on our list. We use this sector to boost our portfolio value appreciation while supporting a minimum level of income.

The risk with tech stocks is to fall for the proverbial “false hope”. “Hope” that a new technology breakthrough will happen and save the business. “Hope” that the stock price will skyrocket during the next quarter. “Hope” that you will find the next Microsoft or Apple (AAPL). You are better off keeping the ones who have proven themselves instead of looking for the next homerun. If you keep-up with your “hope strategy”, you will create your own tech bubble and no doubt get burnt.

The second risk with tech stocks is obviously the speed at which technology evolves over time. You never know if you are holding the next BlackBerry (BB) or the next Apple in your portfolio. Therefore, it is important to select companies that have a well-established growing business model, and they multiply that growth through other avenues at the same time.

How to Get the Best of It

It seems counter-intuitive to use dividend metrics to select companies that are anything but high yielders. However, if you use the dividend triangle to determine which tech stock to buy, you are likely to acquire a company thriving in its environment that feels confident enough to reward shareholders at the same time. Dividend growth is rare in this sector and this is how you can identify a company that will not bust in your face.

The dividend triangle will prevent you from buying Facebook, Netflix, Tesla, and the likes. However, it will also prevent you from buying BlackBerry, Nortel, and Yahoo! at their peak price.

The technology sector is best for growth investors but could also offer a safe haven for income investors.

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