Kames Capital’s Craig Bonthron has warned income investors should temper their optimism towards the technology sector, which is still focused on growth.
Technology companies, normally a favourite sector for growth investors, has perked the interest of income investors.
Technology companies have found themselves abundant with cash, making shareholders confident the money will be returned to shareholders in the form of dividends.
Indeed, Apple has taken over Exxon Mobile as the biggest payer of dividends in S&P 500. The number of dividend-paying tech stocks on the S&P 500 has more than doubled in the past ten years.
However, Mr Bontrhon has warned investors to temper their optimism.
“We constantly question whether cash flows at technology companies are sustainable and if their market shares’ are vulnerable to disruption,” he said.
Apple had a tough week this week as it shares plummeted after sales of the iPhone disappointed. It was joined by Yahoo and Microsoft, who also saw their share prices drop this week.
The technology sector is defined by disruption and so “even mature, valuable technology businesses are always in the crosshairs of new, growing businesses, and while they may create value, they are constantly under threat. Therefore we have to tread carefully,” Mr Bontrhon added.
