When most people think of technology shares they think of high growth, not dividends. But the purpose of technology companies, like all companies, is to trade profitably. Profits can then either be reinvested in the business or distributed to shareholders as dividends (or both).
Here we take a look at 3 ASX tech shares that are paying dividends.
Technology One Limited (ASX: TNE)
Technology One is an enterprise software-as-a-service (SaaS) provider that has been continuously profitable since 1992. The Technology One share price rose 37% over the course of 2019 and shares are currently trading at $8.25. The price-to-earnings (P/E) ratio was ~45 at the time of writing and the dividend yield 1.45%.
Technology One reported revenue of $129.3 million for 1H19, up 5% from 1H18. Importantly, SaaS revenues were up 42% to $37.5 million for the half. Profit before tax increased 130% to $24.5 million from $10.6 million in 1H18. Earnings per share were up 100% to 5.65 cents and a half year dividend of 3.15 cents was paid, 75% franked.
Technology One is financially robust, with a debt-to-equity ratio of 0.01% and interest cover of 167x. Net cash was 32.9 cents per share at the half year, up from 29.6 cents per share in the prior corresponding period. Net assets were up $2.7m to $75.8 million for the half year
Technology One has been implementing its transition to a SaaS company for several years now, and boasted a 39% increase in enterprise SaaS customers in 1H19 over 1H18. The company aims to have 1,000 SaaS customers by 2022, and estimates 50% of revenue will come from SaaS by next year.
More than 75% of Technology One’s revenues are now recurring, with annual recurring revenues expected to triple to >$500 million by FY24. Significant growth opportunities exist in the Asia Pacific region where market penetration doesn’t exceed 18%. Technology One estimates profit margins will improve to 25% over the next few years and then continue to 30%. The company has predicted it will continue to double in size every 5 years.
Integrated Research Limited (ASX: IRI)
Integrated Research provides performance management and analytics software for IT infrastructure, payments, and communications systems. Clients include Airbus, MasterCard, Walgreens and Westpac. The Integrated Research share price rose 86% over the course of 2019 and shares are currently trading at $3.32. The P/E ratio was ~26 at the time of writing and the dividend yield 2.18%.
Integrated Research reported record results in FY19. The company surpassed milestones of $100 million in revenue and $20 million in profit for the first time. Total revenue increased by 11% to $100.8 million. Profit after tax was up 14% over the previous year to $21.9 million. Margins remain strong, with the net profit after tax (NPAT) margin (NPAT/revenue) 22% up from 21% in FY18.
The company reported earnings per share of 12.72 cents in FY19, an increase of 14%. Dividends of 7.25 cents per share, fully franked, were declared during the year. Integrated Research is financially stable with cash of $9.3 million at the end of the financial year and no debt.
More than 95% of Integrated Research’s revenue is derived from outside Australia and is divided across 3 product lines. The Payments product line achieved revenue growth of 92% last financial year with 9 new customers and revenue of over $15 million reported. Results for the Communications product line were flat, while the Infrastructure line saw revenue growth of 28%. The Infrastructure product is high margin and has a sticky customer base.
Integrated Research is focused on delivering innovation that benefits customers. R&D expenses increased 17% last financial year, with R&D spending representing 19% of total revenue. General and administrative expenses were reduced by 5% with overall expenses up by 9%. Integrated research is investing in a new cloud-based platform that will enable complementary expansion of Integrated Research’s solutions to enterprise customers. The first cloud-based solution is expected to be delivered in 2HFY20.
Company policy is not to provide outlook guidance due to the lumpy nature of contracts, particularly towards the end of reporting periods. Integrated Research has, however, advised that FY20 revenues are comparable with the prior corresponding period. Four large contracts worth over $1 million had closed as at November, with larger contracts typically closing towards the end of the reporting period.
Iress Ltd (ASX: IRE)
Iress is a technology company providing software to the financial services industry. The Iress share price rose 18% over the course of 2019 and shares are currently trading at $13.12. The P/E ratio was ~36 at the time of writing and the dividend yield 3.51%.
Iress’ software is used to deliver financial advice, manage investments, navigate financial markets, simplify mortgage applications, and administer superannuation funds. The company boasts 9,000 clients and 500,000 users globally. Iress has a strong track record of delivering revenue and earnings growth, with revenue increasing every year for the last decade.
In 2018, Iress reported operating revenue of $464.6 million up from $430 million the previous year. NPAT increased to $64.2 million, up from $59.8 million. Underlying earnings per share were 54.5 cents and a dividend of 46 cents per share was paid, up from 44 cents the previous year.
In 1H19, Iress reported operating revenue of $241.8 million, an increase of 5% over the prior corresponding period. NPAT was $30.4 million, a decrease of 5% over the prior corresponding period. Earnings per share of 17.7 cents were reported for the period, down 6%, and a dividend of 16 cents per share was declared.
Key drivers of growth for Iress include increasing regulatory requirements, business complexity and industry change, and demand for software that increases efficiency and reduces the cost of doing business. Continued investment in product is a strategic priority that should help to deliver compelling solutions.
In Australia, Iress is focused on the superannuation market with the offering of an automated administration service, Automated Super Admin. In October, Iress announced it had signed an agreement with Emergency Services and State Super to deliver the service. Automated Super Admin is expected to allow funds to reduce manual processes, realise efficiencies, and invest in higher value services for members.
Dividend-paying technology shares can provide an income stream as well as the potential for capital growth. These 3 ASX technology companies have shown the ability to deliver growing profits, which is a positive sign for future dividend payments.
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Returns as of 6th October 2020
Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Integrated Research Limited. The Motley Fool Australia has recommended IRESS Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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