by Tom Taulli | July 30, 2013 11:57 am
For the big tech operators, it’s been a rough year, as seen with stocks like Oracle (ORCL), IBM (IBM) and SAP (SAP). Yet the space could offer some juicy returns for investors.
Granted, the headwinds persist, like pressures from the cutbacks in federal spending and the slowdown in Asia. Besides, the tech industry is subject to threats from new approaches — just look at how Intel (INTC) and Microsoft (MSFT) have failed to deal with the onslaught from mobile.
Despite all this, there are still many solid companies that should provide for strong yields for the long haul.
Here’s a look at four such companies.
While AT&T has tough competition from Verizon (VZ) — as well as others like Sprint (S), which snagged $21.6 billion from Softbank — the company will likely remain a top player in the mobile space for many years to come. It continues to invest heavily in its LTE network, which should provide opportunities for expansion with data plans and add-on services. In Q2, mobile data revenues shot up by 20% to $5.4 billion and the company gained 1.2 million new smartphone subscribers.
But AT&T also has a thriving broadband/TV business, called U-Verse. Over the past seven years, it went from zero to $12 billion in revenues and has built a subscriber base of roughly 9.4 billion.
The company has generated $17.7 billion in operating cash flows so far this year, so the dividend looks pretty safe for now. And investors should rest easier knowing that AT&T has increased its quarterly dividend for 29 consecutive years.
The company is a top manufacturer of hard disk drives (about 40% of the world market). With the explosion of Big Data, there should be continued healthy demand.
The PC market continues to be weak but STX has been making strong moves to diversify its business. For example, the company has been aggressive in the mobile market, offering new 7-millimeter hybrid drives and 5-millimeter disk drives, which are ideal for thin, light smartphones and tablets. The other big opportunity is the cloud. In this market, STX has continued to innovate with its launch of 4 terabyte product.
The company has also been focused on cutting costs, and made big leaps by refinancing its debt, which has resulted in more than $40 million an annual savings. Because of these efforts, STX sports attractive gross margins of 28%, and has generated earnings of about $2 billion in fiscal 2013.
Lexmark International (LXK)
The company is in the midst of a major transformation. About a year ago, it announced that it was unloading its inkjet printing business, ultimately leading to a 13% reduction in the workforce.
To replace the revenues, the company has made a spate of acquisitions in areas like document management software and imaging, which attractive margins and bright growth opportunities. Lexmark will also benefit from its long-time focus on business customers. Revenues have remained a bit sluggish, though, falling by 3.5% to $886.7 million in Q2.
Still, there are encouraging signs that Lexmark’s software business is picking up momentum: Despite its challenges, the company continues to remain highly profitable. Net income came to $88.9 million in the latest quarter, up from $39.2 million in the same period a year ago.
And perhaps best of all for investors, Lexmark says it is committed to returning at least 50% of its cash free flows to shareholders.
CA Technologies (CA)
OK, the company is far from sexy. It builds incredibly complex software to help companies with security, management of mainframe systems, and testing. These things are boring, but they’re also mission-critical.
For the most part, the company has been living off of renewals as growth revenues remain stagnant. But CA wants to change that. The company is in an ideal position to benefit from the growth in cloud computing because customers are looking for trusted and reliable technology providers. In fact, CA is already getting some traction, snagging 460 new customers last year for its enterprise solutions business.
It will still probably take some time for these efforts to move the needle. But for dividend investors, the main thing is that CA continues to generate nice cash flows — $1.4 billion in 2013 — to support an attractive payout.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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