New ETF will track dividend-paying tech stocks

Trying to take advantage of the growing buzz around dividend-paying technology firms, First Trust Advisors LP plans to launch an exchange-traded fund focused on these firms.

First Trust has filed with the Securities and Exchange Commission to market the First Trust Nasdaq Technology Dividend ETF, which will track an index of up to 100 tech and telecom companies that pay dividends. Tech companies will be given approximately 80% of the weighting, while telecom companies will make up the additional 20%.

That does give telecom companies, such as Verizon Communications Inc. (VZ) an overweight position relative to the technology sector. The Technology Select SPDR ETF (XLK), for example, has a 13% weighting to telecom.

The overweight is likely to give the ETF’s overall dividend a boost as telecom companies tend to have much higher payouts than tech companies today. Verizon has a yield of 4.55%, while the SPDR Technology Sector ETF has a dividend of 1.42%.

While technology companies may be offering small dividends now, market watchers are betting they’ll be able to increase those dividends in the future. Equity income fund managers, in particular, are already getting excited about the opportunity tech presents down the road.

“There’s been a literal sea change in tech,” said James Morrow, portfolio manager of the $8.3 billion Fidelity Equity Income Fund (FEQIX), in an interview last week. “It’s hard not to get excited about the new willingness of tech to pay a dividend, and it’s hard not to get really excited about the ability of tech companies to increase payouts, given how much cash is on their balance sheets.”