Tech stocks that provide steady growth

Technology stocks are hot once again. The Nasdaq composite index, a proxy for tech stocks, recently passed the 4,000 mark, a level it hasn't reached since the tech-stock crash 14 years ago. The Nasdaq, which is about 50 percent technology stocks, has more than doubled since 2009, outperforming the large-cap Standard & Poor's 500 index by a significant margin.

But these aren't the same tech stocks that may have burned you in 2000—companies long on vision and concept but short on maturity or earnings (or even sales, in a few cases). In fact, we're not even talking about hot new digital companies such as Groupon, LinkedIn, and Facebook, which went public in the last few years.

Mature tech companies

On the contrary, much of the tech sector is as mature as International Business Machines was in the 1960s, when it created nearly as much revenue as each of the big three automakers. Even the normally tech-shy Warren Buffett purchased $10 billion of IBM in late 2011 on behalf of Berkshire Hathaway. It yields a secure 2.3 percent dividend annually, and has increased its dividend for 19 consecutive years. And Apple, which initially declared a dividend of $2.65 a share in March 2012 (a bow to relentless pressure from shareholders to unlock some of the $150 billion in cash the company holds) has since increased its dividend twice.

Less volatility

Technology stocks are no longer the wildest ride in the stock-market amusement park, as they were back in 2000. The sector currently has a lower beta—a measure of volatility relative to the broad market, which by definition is always 1.0—than other stock sectors. The median beta of tech stocks in early 2014 is 1.3, which means the sector is more volatile than the market but less so than the financial services, basic materials, and energy sectors.

Within the tech sector, some names are less volatile than the S&P 500. IBM is the steadiest Eddie, with a beta of just 0.7; Apple, Google, and Microsoft's betas are similar. And there are other less-giant, but equally less-volatile, dividend-paying tech companies, such as the software giant Intuit.

Bargain prices

Similarly, tech stocks are more middle-of-the-pack when considered on a valuation basis. They recently traded at 14 times their 2014 estimated earnings, a little less than the broader S&P 500 basket of stocks. Considering that tech stocks were usually trading at a multiple of 20 or above—even after the tech bubble burst—they might be considered a relative bargain now.

The growing appeal of tech stocks might also be partly explained by the changing definition of a technology company. If a company with a business model similar to famous tech-bubble failures such as Pets.com and Webvan were launched today, it would be considered a consumer-cyclical stock, one that depends on discretionary spending. That's how the dot-com survivors Amazon and eBay are now classified.

If you're kicking yourself for not buying shares of Apple years ago, you might be happy to learn that you actually have a piece of that pie if you're invested in a broad-market index fund that tracks the S&P 500 or the entire market. And if you want to further participate in what might be an opportunity to buy tech stocks, consider a low-cost exchange-traded fund that focuses on tech, such as the PowerShares QQQ ETF (ticker: QQQ), or the Vanguard Information Technology ETF (ticker VGT).

—Chris Horymski