With investors prioritizing profits, these tech dividend stocks should be winners.
There’s a common misconception that there is a trade-off between growth and income. Either a company can produce strong capital gains, or it exists primarily to pay dividends. However, there are a surprisingly large number of technology companies that pay solid dividends. And, given the shift in market winds over the past year, these tech stocks with dividends should outperform going forward. Right now, investors are focused on companies with profits and cash flows rather than more speculative growth investments. As such, tech companies with strong profitability and healthy dividend policies should be a sweet spot for investors in 2023. These companies should stand out within the tech sector over the next year.
Broadcom Inc. (ticker: AVGO)
Broadcom is a massive American semiconductor company. With 20,000 employees and more than $32 billion in annual revenues, Broadcom is already a dominant mover and shaker in its industry. The company aims to grow even larger as it hopes to acquire VMware Inc. (VWM) in a monumental $61 billion deal. That deal, along with the possibility of antitrust regulators blocking it, has added near-term uncertainty to the Broadcom story. A look at the bigger picture shows that Broadcom has an enviable business in leading semiconductor categories, such as system-on-a-chip and embedded processors and controllers. And, with shares currently trading at just 14 times forward earnings along with a 3.1% dividend yield, there is plenty of value here to compensate for the near-term headline risk around the pending VMware acquisition.
Cisco Systems Inc. (CSCO)
Cisco Systems is the dominant player in networking equipment. The firm was one of the hot stocks of the 2000 dot-com boom. While valuations have come down dramatically since that point, internet data usage has continued to grow by leaps and bounds, benefiting Cisco tremendously. In fact, Cisco now generates more than $50 billion per year in revenues and earns fat profit margins on those sales. Cisco brought in total net income of $11.5 billion in the 12 months ending on Oct. 31, 2022. This ends up amounting to a price-earnings ratio of just 17. On top of its fantastic profitability, Cisco has an excellent balance sheet with nearly no net debt. This allows the company to pay a 3.2% dividend yield while also buying back billions of dollars of stock every year. Networking gear may not be cutting-edge anymore, but it is still essential, and Cisco’s hold over the space remains firm.
Texas Instruments Inc. (TXN)
Texas Instruments is the worldwide leader in analog semiconductors. This type of chip turns real-world information, such as weather conditions, into data that machines can interpret. Texas Instruments is enjoying a big growth market is in smart vehicles, for example, which need multiple sensors and gauges to interpret the physical conditions around them. Analog semiconductors are also attractive since they tend to have longer product cycles, more stable sales volume and more limited competition than firms typically see in the rest of the semiconductor industry. Analysts expect a strong decade for the company, but there is supposed to be a downturn in 2023 due to excess inventory at present. Texas Instrument put these fears to rest, though, with its fourth-quarter earnings release where both revenues and income comfortably topped expectations. The stock pays a 2.8% dividend.
Qualcomm Inc. (QCOM)
Qualcomm is a leading semiconductor company focused on telecom equipment. The firm built its business on patents and intellectual property supporting 3G and 4G mobile telephony. Nowadays, Qualcomm is an integral player in the 5G mobile rollout. It has also developed its own chipsets, such as Snapdragon, which can power high-end phones and tablets. Qualcomm stock sold off substantially over the past year amid a slowdown in the semiconductor industry and delays in the pace of 5G rollouts in some markets. The short-term nervousness is understandable, especially if a recession happens. However, there’s little doubt that Qualcomm will generate plenty more value and innovation for its clients in coming years. In the meantime, even with the cloudy outlook for 2023, Qualcomm stock is selling for just 11 times forward earnings and pays a 2.2% dividend.
International Business Machines Corp. (IBM)
Many years ago, IBM was one of the world’s most dominant computing firms, but the company largely missed the transition from mainframe to personal computers, ceding the pivotal operating system market to Microsoft Corp (MSFT). IBM has missed out on many other key technological innovations since then. While many investors may see IBM as a company far past its prime, the firm’s situation is now better than most people appreciate. IBM jettisoned its slowest-moving business with the recent Kyndryl Holdings Inc. (KD) spin-off. Meanwhile, IBM’s revenues bottomed out in fiscal year 2020, and the company has now returned to top-line growth. With its investments in cloud computing and artificial intelligence starting to pay off, it seems like IBM has turned the corner. Shares also yield a generous 4.9%.
Corning Inc. (GLW)
Corning has pioneered a variety of new products and technologies within glass and ceramics. Nowadays, Corning is primarily involved in making specialty glass products for televisions, smartphones, laptops and pharmaceutical packaging materials. The company is known for its Gorilla Glass, which is a damage-resistant and crack-resistance glass made for smartphones. Corning has also become a leader in specialty solutions that go into fiber optic and 5G deployments. While Corning is a tech-facing company with innovative cutting-edge products, it is also a stable business with tons of mature products and well-developed intellectual property to reinforce its competitive position. This allows the company to pay a solid 3% dividend yield while also driving new product innovation. Shares now trade for a reasonable 16 times forward earnings.
HP Inc. (HPQ)
Like IBM, many investors probably don’t think about HP much anymore. The company is long past its peak in terms of being a glamorous or trend-setting firm. While HP is hardly a hot stock nowadays, its investment merits remain solid. Tech hardware is a low-margin competitive business, to be certain. But HP sells a gargantuan amount of products each year. Revenue for fiscal year 2022 was $63 billion, despite a market capitalization of less than $30 billion. That sets up a value-buying opportunity. Shares trade at less than eight times forward earnings and offer a 3.7% dividend yield. HP investors are also in good company. Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) acquired about 10% of all outstanding HPQ stock last year, as the Oracle of Omaha seemingly found HP’s valuation to be irresistible.
Avnet Inc. (AVT)
Avnet is a technology distribution company. It markets and distributes a variety of products including semiconductors, interconnect and electro-mechanical devices to a wide range of clients. The company also offers support systems to engineers and information technology professionals, helping them plan and implement supply chains and design products. Distributors may not be glamorous, but they can turn over massive amounts of volume. Avnet was generating about $18 billion per year in revenue prior to the pandemic, and that figure reached about $25 billion in 2022. The company earns a decent profit margin on these revenues, resulting in a P/E ratio of less than six. This supports both a solid dividend and a massive share repurchase program. The company bought back 3.6% of its outstanding stock in the last quarter alone, and it pays a 2.5% dividend.
8 of the best tech dividend stocks to buy:
— Broadcom Inc. (AVGO)
— Cisco Systems Inc. (CSCO)
— Texas Instruments Inc. (TXN)
— Qualcomm Inc. (QCOM)
— International Business Machines Corp. (IBM)
— Corning Inc. (GLW)
— HP Inc. (HPQ)
— Avnet Inc. (AVT)
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8 of the Best Tech Dividend Stocks to Buy originally appeared on usnews.com
Update 01/27/23: This story was previously published at an earlier date and has been updated with new information.
