Are dividend paying tech stocks undervalued?

Big, cash-rich technology companies are drawing intense scrutiny these days from frustrated shareholders and activist investors, but they also have found some new fans.

Take famed Oakmark Fund manager Bill Nygren. He thinks the market is undervaluing technology stocks—or, at least, looking at some of the bigger names through the wrong lens. They look a lot like the consumer product companies of the 1980s to Nygren, featuring moderate top-line growth and relatively inexpensive valuations. Intel, for example, is selling only at 11 times next year's earnings, Nygren noted. The technology industry is returning lots of capital to investors, too, and not just in the form of stock buybacks. "It's a good place to look for dividends," he said.

Intel (INTC) is currently paying 3.62%, Cisco (CSCO) is paying 3.5%, and Microsoft (MSFT) is paying 2.96%

While these yields are not overwhelmingly high, compared to certain telecoms (AT&T (T) 5.70% and Verizon (VZ) 4.58%), the top tech companies are keeping pace with the broader utilities (Vanguard Utilities ETF (VPU) 3.58%). While the Utilities ETF gives a much broader exposer, hand picking a couple top tech stocks probably makes good sense. For a broader technology sector play you can pick up iShares US Technology ETF (IYW) and earn a 2.31% yield or Vanguard Information Technology Index ETF (VGT) yielding 2.12%

Technology dividends are still fairly low compared to a traditional dividend-rich sector, like utilities. But that means there's still lots of room for dividend growth, said Diane Jaffee, portfolio manager of the TCW Dividend-Focused Fund. At year-end 2013 the technology sector's average payout ratio was only 20 percent of cash flow, compared to 36 percent for the S&P 500, she noted.

Jaffee's fund has been buying dividend-paying tech stocks, including Microsoft, Cisco, Intel and Microchip Technology. For some tech giants, an increasing dividend profile is nothing new, but Jaffe is still betting on larger payouts. Intel has increased its dividend for 10 years and Microsoft for 12 years.