by Tom Taulli | February 28, 2014 1:07 pm
While tech stocks and dividend stocks haven’t always been synonymous, the two increasingly have been coming closer together in recent years.
Once-growthy stocks have begun to peak, and others have begun to slow down — and many of those companies are now using their enormous cash hoards to satisfy investors in another way: namely dividends.
So what once was a tedious job of trying to balance a portfolio by including dividend stocks in the tech sector … well, it’s gotten a bit easier.
What’s also nice is that you can get a little extra juice out of these by holding them in a Roth IRA. Because you’re essentially investing with already-taxed dollars, none of your returns — including the income you pick up from dividend stocks — will be touched by the IRS when you finally start to withdraw.
To help you navigate the income potential of technology, here’s a look at three attractive-looking dividend stocks in the tech sector that yield at least 3%, if not more:
Dividend Yield: 3.4%
The traditional storage business has long been a brutally competitive one. However, thanks to consolidation, the industry has been on the mend, and better pricing and margins have followed as a result.
Storage also is being driven forward by several technologies, such as mobile, Big Data and cloud computing.
One of the top players in the space is Seagate Technology (STX). Seagate’s product line includes hard drives as well as cloud-based backups and data protection. A key to the success of STX has been a focus on R&D, with the company making about $1 billion in annual expenditures. In fact, Segate has more than 5,500 patents issued in the U.S. alone.
Yes, Seagate still relies heavily on the PC business, which has been in a perpetual slow decline and weighed on other blue-chip tech stocks such as Intel (INTC) and Microsoft (MSFT). Still, STX has been countering by transitioning to higher-growth categories via acquisitions.
On the dividend side: Seagate continues to pump out hefty cash flows (that came to about $1.5 billion for the past six months) that should keep feeding the payout. Meanwhile, STX also trades at a reasonable 11 times earnings.
While STX has had a bumpy start to 2014, it remains in a long-term uptrend. And the upside of Seagate’s 7% year-to-date losses is that has slightly sweetened the current yield to 3.3%.
Dividend Yield: 4.1%
This Chinese-based company is the largest mobile operator in the world with a staggering 772 million subscribers, representing more than 60% of China’s total wireless subscriber base. 3G subscribers alone jumped by 7.4% from December to January.
While it might be tougher for China Mobile to keep growing at that clip, CHL stock still looks interesting.
The main allure is that China Mobile should benefit nicely from a transition from 3G to a 4G network. Meanwhile, its recently signed deal to sell Apple’s (AAPL) iPhone makes it a lot more attractive as well. CHL should be in a nice position to ramp up pricing on data plans in the next few years as consumers will increasingly want to (and be able to) share photos and watch videos. And given its scale, China Mobile should be able to negotiate lucrative deals with other vendors and realizes economies of scale.
CHL already is a huge cash generator. According to its latest earnings report, China Mobile reported operating cash flows of $37 billion over a six-month period. That should help CHL keep up with/improve upon its dividend, which came in at $2.01 last year and currently yields 4.1%.
Dividend Yield: 3.5%
Plenty of tech stocks have done well in the past year. Cisco (CSCO) isn’t one of them. CSCO stock has gained only 6% in the past 52 weeks to wildly underperform the market, and it’s off about 2% to start 2014.
The reason: Cisco has released several disappointing earnings reports during this time. And the blame can be spread around — CSCO has had issues with emerging-market growth (or lack there of), reverberations from the NSA scandal, and the company itself fumbled the ball in its dealings with competitors like Huawei, Hewlett-Packard (HPQ) and Juniper Networks (JNPR).
However, much of this appears baked into CSCO stock, which is trading at just 10 times next year’s earnings. Moreover, it’s increasingly likely that even a slight improvement in the business could lead to an outsized relief rally in CSCO stock. And there’s plenty of potential for that — CSCO has been getting lots of traction in its security business, cloud efforts and mobile networking. Plus, it should get traction from its next-gen routers and switches.
Meanwhile, Cisco offers an attractive dividend that it has grown rapidly, from 6 cents per share in 2011 to 19 cents quarterly … good for a current yield of roughly 3.5%.
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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