by Marc Bastow | August 2, 2013 6:30 am
It’s seemingly all gloom and doom in the technology sector for just about anyone not named Google (GOOG) or Amazon (AMZN).
PC companies’ wares are falling behind Apple (AAPL) and the rest of the mobile-focused group. Enterprise IT stocks are seeing companies and even governments cut back as they look for ways to save money.
Still, some of the “older” names in technology are worth a swing. Sure, their products might not be at the forefront of popularity, and sure, their services might be on the “we’ll get to that later” pile for companies waiting for their finances to turn around, but these old guys have a number of traits that income-focused investors should love: Install bases. Cash hoards. Free cash flow.
The kinds of things that can keep you at least treading water, all while being generous with dividend payments.
Here are three I like right now:
Microsoft (MSFT) is something of an enigma.
On the one hand, Microsoft is in the crosshairs of the post-PC movement — one that has seen PC sales and shipments fall for five consecutive quarters, including an 11% drop for the most recent quarter.
Tablets are all the rage, with research firm Gartner projecting 200 million in shipments for the devices to exceed notebooks for the first time. But MSFT is thoroughly botching the mobile movement, taking it in the shorts last week after announcing $900 million write-off for its Surface tablet inventory backlog.
Yet on the other hand, MSFT has roared ahead nearly 20% year-to-date despite last week’s kicking. And more importantly, Microsoft sure knows how to print money.
Despite the write-off, Microsoft increased its cash position year-over-year by $14 billion, leaving it with $67 billion in the bank. The company also enjoyed Q4 revenue gains across its Business (14%), Windows (6%), and Servers and Tools (9%) divisions, and net operating cash flow from its still immensely profitable platforms was nearly $6 billion. PC sales might be declining, but MSFT’s install base — and thus, its potential upgrade business — won’t crack for some time.
Microsoft has increased its dividend every year since it initiated its quarterly payout in 2004, from 8 cents then to 23 cents now, and every hike in that time has been by double-digit percentages, so expect the same service in September, when MSFT is likely to announce its yearly hike.
Cisco (CSCO) routers and switches made the transfer of all the data and information flow go to all the right places, and quickly. The company has been at it the business for nearly 30 years — part of how they’ve grown to servicing more than 100,00 customers and hold the top spot for revenues in routing, switching and wireless LAN markets.
Still, CSCO is transitioning toward a mobile world, and has set its focus on offering full solutions — networks, integrated products, services and software — to build on its huge install base. Cisco also is going outside for technology as needed: its recent acquisition of Sourcefire (FIRE) brings it further expertise in network security.
In the meantime, CSCO has managed to increase revenues in every year since 2009, rising from $36 billion to $46 billion over that period, with net income — admittedly, after a dip in 2011 — rising from $6.49 billion that year to $8 billion in 2012.
Meanwhile, cash and cash flow have powered a nice (albeit short) dividend history. We’re looking at $48 billion on the balance sheet as of the most recent quarter, and net operating cash flow of just more than $3 billion. CSCO has nearly tripled its dividend since its first 6-cent payout in 2011, shelling out 17 cents quarterly for a yield of just more than 2.6% on current prices.
CSCO has the time and expertise (not to mention Uncle Scrooge’s vault) to pay you very nicely for a long time.
Oracle (ORCL) hasbeen the leader in database management software for more than 30 years. That history provides Oracle with an install base that continues to thrive today, counting more than 390,000 customers, including the whole Fortune Global 100.
Oracle’s 2010 acquisition of Sun Microsystems solidified the base even further, allowing ORCL to offer a full “stacked technology” product, in which any and all parts of its hardware and software technology solutions work together seamlessly.
The net result of that huge customer base is profitability: Despite slow revenue growth between 2011-13 from $35.6 billion to $37.2 billion, ORCL’s bottom line has managed to grow from $8.6 billion to $10.9 billion in that same time.
The net result is a cash cow that sported $32 billion in cash and short-term investments on the balance sheet as of the most recent quarter, not to mention $14.2 billion in net operating cash flow for 2012 vs. just $650 million in capex. Even after doubling its dividend to 12 cents per quarter — which investors will reap starting Aug. 2 — it has oodles of money left, and a paltry dividend ratio of 13%.
The huge caveat here is that ORCL doesn’t have the big yield you’d expect from a typical “income stock” — at only 1.5% as of this writing. However, I’ll point to the metrics above as reasons why investors can have a lot of confidence in their yield on cost growing quickly in the years to come.
Like its aforementioned brethren, Oracle is a formidable cash machine with a huge install base that’s figuring out the cloud landscape. Hard not to feel good about that.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AAPL and MSFT.
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