by Tom Taulli | August 9, 2012 11:56 am
Mature tech companies can provide investors with an interesting combination: some potential for above-average growth — and a strong dividend. In fact, they often have huge barriers to entry, which allows for solid ongoing cash flows. This makes it easier to steadily increase the dividend payout.
So which tech companies look attractive in terms of cash flow and dividends? Here’s a look at five:
CA (NYSE:CA) is a provider of mission-critical software, such as for monitoring IT systems, fixing problems and maintaining up-time. It holds over 700 patents and spends $700 million a year on software development.
Much of CA’s revenues come from its mainframe business, which has little growth opportunities. But the company has been investing in virtualization technologies, which should benefit from the boom in data centers.
In the meantime, CA should continue to generate strong cash flows. For the past decade, they were over $1 billion a year. This certainly makes it fairly easy to support a nice dividend payout, which is currently 4%.
Microchip Technology (NASDAQ:MCHP) develops microcontrollers (MCUs) for semiconductors. These provide functionality for remote controls and thermostats. Unfortunately, demand has been weak because of the macroeconomic situation. But Microchip technology now has lean inventories and has been cutting back on expenses.
The company also generated $101.4 million in free cash flows in the latest quarter. In all, it’s holding $1.82 billion in the bank.
And the dividend? It’s currently at 4.1%.
When it comes to generating cash flows, Intel (NASDAQ:INTC) is a pro. Last year, they came to about $21 billion. As a result, the world’s largest chipmaker has been able to pay a respectable dividend yield, which is currently at 3.4%.
While Intel won’t be a big growth play, some nice catalysts should help boost the stock. For example, the company has a robust pipeline of chips for mobile devices. There should also be uptake from the expected growth in the ultrabook market.
Yet there’s something else: the cloud. Keep in mind that Intel is a big supplier of technologies for data centers. So, growth isn’t completely out of the picture.
Even though Garmin (NASDAQ:GRMN) has an attractive 4.5% dividend yield, there’s fear that it could be vulnerable. After all, Garmin’s GPS products seem to be fat targets for new technologies like smartphones.
The good news is that Garmin has been working hard to deal with the disruption. The company has leveraged its navigation technologies in areas like fitness, marine and aviation.
In the latest quarter, the total unit shipments were up about 4% to 3.9 million. As for the full-year, the company expects to generate a robust $650 million in free cash flows.
Iron Mountain (NYSE:IRM) is a major provider of document management and storage solutions, with a focus on regulated industries. It’s a stable business that throws off lots of free cash flows, which are expected to range from $320 million to $360 million for 2012. What’s more, the net cash position is a healthy $3.3 billion. In fact, the company is in the process of converting to a real estate investment trust (REIT), which will provide significant tax benefits — further improving the cash flows.
It’s true that digitized information is a negative trend for Iron Mountain. But the fact remains that many industries — like health care and financial services — have intensive paper requirements. At the same time, the company has been investing more in software storage solutions.
As for the dividend yield, it’s a respectable 3.3%.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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