by James Brumley | August 30, 2012 7:00 am
Investing can be a tricky game sometimes. Sure, from the outside looking in, all the clichés and tips seem simple enough — Buy the rumor and sell the news; the greater the risk the greater the reward; buy low and sell high; and of course, there’s no free lunch on Wall Street.
Funny thing about those assumptions, though, is that — while they may be true nine times out of ten — it’s that one time out of ten that can hurt you.
One of the common assumptions that nags at me from time to time is the assumption that all tech stocks are growth stocks, and not a place an income investor would want to park any money. Sure, it may be true for a lot of technology names, but have you taken a real close look at the payouts on some of the large — yet unloved — technology companies?
Before you throw the baby out with the bathwater, consider these tech stocks with surprisingly decent (and growing) yields.
Even for investors who are familiar with technology stocks that pay dividends, printer-maker Lexmark (NYSE:LXK) is an unfamiliar name. That’s because the company only started to pay out some of its cash flow beginning late last year, beginning with 25 cent payment on in November.
And, in spite of fiscal struggles that have prompted its exit from the inkjet-printer business, the company has remained faithful to its new dividend promise, paying 25 cents in March of this year and then upping the rate to 30 cents per share for the May and August payments.
For those of you keeping score, that’s $1.10 worth of payout for a $21 stock, pushing the yield well above 5%.
Microchip Technology (NASDAQ:MCHP) doesn’t quite top that yield, but still boasts one that sits just above 4%. And, considering that it hasn’t missed or lowered any quarterly payment since at least 2002, you have to admit it’s a pretty impressive feat. Plenty of large-cap companies that were specifically designed to pay and grow dividends haven’t even been as reliable.
To be fair, the quarterly dividend payment growth has stalled a bit since 2008. It reached 34 cents per share late that year, and is only at 35 cents now. That slow-down may have been a deliberate decision in front of the earnings slowdown witnessed over the prior six quarters.
The trend is already showing signs of reversing, though, with Microchip Technology looking for year-over-year earnings comps to start rising again this quarter. The catalyst? The industry’s best serial SRAMs and a new digital-to-analog (display) converter, which may even mean the beginning of renewed dividend growth.
Most investors have probably never even heard of Comtech Telecommunications (NASDAQ:CMTL) before. That’s OK. With a market cap of only $514 million, it’s not like this government contractor (mostly defense) does anything that would attract the attention of civilian consumers. And for those who did notice it, the earnings dropoff in mid-2011 is a major red flag … not to mention a potential threat to its 3.9% yield.
There is good news on the earnings front, though: Income is expected to turn higher beginning this quarter.
Regardless, the company’s dividend payments are predetermined rather than based on income from one quarter to the next. The payment rate for the coming fiscal year still hasn’t been determined, but the quarterly payment for 2011 was 25 cents, and for 2008 it was 28 cents.
Yes, it’s another semiconductor maker, but it’s also the strongest dividend name among the four technology stocks under the microscope here. Intersil’s (NASDAQ:ISIL) current yield is a hefty 5.3%, and it hasn’t missed or lowered a payment since 2003, even when (frankly) it probably should have.
On the flipside, it also hasn’t increased the quarterly payment from the current rate of 12 cents per share since the beginning of 2008; it may not have been able to even if it wanted to do so.
So why give it a shot now? Like all three of the other names on this list, the company has stuck to its dividend payout plan, even when it hurt. You have to respect that.
Besides, 2013’s projected income is looking better than 2012’s likely number, and the bottom line may really crank up after that. See, not only is Intersil an Apple (NASDAQ:AAPL) supplier riding the iGadget growth wave, but Intersil’s low-voltage-consumption technologies are going to be instrumental in squeezing a longer life out of the batteries powering today’s handheld devices like smartphones and tablets.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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