by Jeff Reeves | March 13, 2014 3:11 pm
High dividend stocks remain in favor in 2014, particularly because the stock market hasn’t had as much spring in its step.
The S&P 500 is up only about 1% after a month and a half, so if you don’t have high dividend stocks in your portfolio, you may not have a lot to write home about … and even then, if your shares are lagging you might only be breaking even.
But remember the old adage that it isn’t just a stock market but a “market of stocks.” While the broader environment on Wall Street may not be very encouraging, that doesn’t mean you can’t a number of great opportunities.
Like tech stocks, for instance.
Consider that the tech-heavy Nasdaq composite is up more than 3% year-to-date, significantly outpacing the S&P and Dow. Consider that Facebook (FB) and China’s Qihoo 360 (QIHU) are some of the top-performing large-cap stocks of 2014 so far, up 27% and 42% respectively since January 1. And consider the continued drumbeat of tech IPOs that have come to market recently, including Coupons.com (COUP), which offered at $16 this week and now trades for about a 60% premium to that price.
There’s clearly a lot of potential here in the tech sector. But for many investors who are wondering about the state of this rally and prefer the income from high dividend stocks, fast-moving plays like Qihoo or recent IPOs like Coupons.com are too risky to fit into their portfolio.
So if you’re looking for high dividend stocks with a high-tech feel, where can you turn?
Here are a few ideas:
Dividend yield: 3.44%
Yes, that Garmin (GRMN). While GPS sales aren’t going like gangbusters thanks to the rise of smartphone navigation programs, this firm does much more than those suction cup-mounted gadgets for your car.
Garmin is involved in both airplane and marine navigation systems, as well as in-dash systems supplied to automakers ranging from lower-end Suzukis to luxury vehicles from Mercedes-Benz. There is also a big push into trucking and logistic GPS technology.
At the same time, GRMN is seeking out new applications for its technology that include pet location technology for lost dogs, fitness apps for runners, back-up cameras for vehicles and dash cams to help record what goes on in front of drivers to protect police or commercial drivers from liability issues.
This diverse product catalog has allowed Garmin to tack on 50% gains in the last 12 months on optimism about its future. Yes, sales have rolled back a bit in the last few quarters, and revenue is projected to be flat. But the company is looking at a 16% jump in its earnings thanks to better margin products and a $300 million stock buyback plan last year.
As for the dividends, Garmin pays 48 cents quarterly which is good for a nice 3.4% yield. That’s a hefty 73% of earnings, but earnings are indeed growing, and GRMN had about $1.3 billion in cash on the books at the end of the last quarter — enough to pay more than three years’ worth of dividends without dipping into a penny of cash flows. For dividend stocks, that’s a good place to be.
Garmin may not add another 50% from here, but many investors still are overlooking this tech stock. It has decent growth in profits ahead in 2014, and a reliable dividend with a yield that is better than many other dividend stocks on the market right now.
Dividend yield: 3.7%
Intel (INTC) is another one of those dividend stocks that most investors have left for dead as a relic of the past. However, the stock’s 14% appreciation in the last 12 months vs. 20% for the S&P 500 doesn’t tell the whole story.
It’s no secret that Intel has been late to the mobile game, with its designs lagging behind rivals like ARM Holdings (ARMH) and Qualcomm (QCOM).
But the company continues to innovate, and Intel just announced two new Atom chips at the Mobile World Congress that could really make a splash. The new chips feature high speeds, low power drain and the capability to run Android software from Google (GOOG) as well as Windows software from Microsoft (MSFT).
But even if you don’t believe in the potential of Intel’s latest chip line, it’s important to remember that this company is far from doomed if it doesn’t catch on. INTC boasts operating cash flow of more than $20 billion annually, with another $30 billion in cash and investments in the bank. That kind of cash tends to keep dividend stocks like INTC running.
The company also has a robust 3.6% dividend yield that is very sustainable at little less than half of projected earnings for 2014. And while Intel isn’t a storied blue chip with 100 years of history, it’s worth noting the company has indeed paid dividends since 1992 – much longer than most tech dividend stocks out there.
Dividend yield: 3.5%
Cisco (CSCO) stock admittedly hasn’t been very impressive over the last few years based on share price alone. The stock is up just 70% from the March 2009 lows vs. 170% for the S&P 500 index.
But for long-term dividend investors, CSCO could hold serious potential as a value play — especially at current pricing. Cisco yields 3.5% in dividends, which is better than many consumer staples dividend stocks, including Coca-Cola (KO) or Procter & Gamble (PG).
Cisco doesn’t have a long dividend history, but it initiated a dividend in 2011 at 6 cents per share quarterly, and it has already tripled that to 19 cents. Furthermore, even after this steep increase the dividend payout ratio is about 38% of earnings. That’s not just sustainable, but also ripe for future increases in dividends.
Sure, the most recent Cisco earnings did forecast a sales decline — not a good sign for a company that has struggled with its top line previously. But investors have heard this story many times before, so the narrative isn’t new. And don’t forget CSCO actually topped expectations in earnings.
With a forward price-to-earnings ratio of about 10 and a hefty $47 billion in the bank, Cisco seems to be a fair value at current pricing. Long-term investors who want to play the tech sector with solid dividend stocks could do worse than Cisco.
Dividend yield: 3.5%
Since the March 2009 lows, Seagate (STX) is up a phenomenal 1,500%. But investors shouldn’t think the party is over in this hard drive stock.
A lot of Seagate’s rise was thanks to a shift in sentiment. All the talk about a post-PC age weighed on shares, as did supply chain disruptions from the 2011 tsunami in the Pacific. But Seagate put up the numbers and has seen STX stock power higher and prove the bears wrong at every turn.
It’s also important to note that the dividend payments have proven naysayers wrong, too. While Seagate canceled its payouts during the financial crisis, it not only reinstated its dividend but brought payments back at an even higher rate. In fact, at the beginning of 2003 Seagate was paying just 3 cents per share each quarter in payouts; it now boasts 43-cent dividends for an increase of 1,330%.
Looking forward, STX spent more than $1.1 billion in R&D expenditures last year, and that research has been a big driver of both new products and better operations over the last few years. Case in point: Its most recent line of drives store 480 hours (20 days) of HD video, making them ideal for surveillance and security applications.
Furthermore, despite the huge run-up, Seagate still sports a forward price-to-earnings ratio of less than 9. And despite a 3.5% dividend yield and the massive increase in dividends over the last decade, payouts are quite sustainable at about one-third of current earnings.
Dividend yield: 3%
Microsoft (MSFT), like Cisco, also makes the list of high-tech dividend stocks written off by many investors. But in reality, MSFT stock hasn’t been as bad as some detractors may believe.
Shares have only slightly lagged the market since the 2009 lows, and in the same period MSFT has managed to more than double its dividend payouts. Microsoft was paying 13 cents per quarter in 2009 and is now paying 28 cents now, good for a 3% yield.
And Microsoft still has a reasonable forward P/E of about 13, and more than $98 billion in cash and investments. Not bad.
The bears continue to point at overreliance on desktop software in a mobile age; however, MSFT is indeed evolving. New CEO Satya Nadella is proof of this, with his experience running the cloud computing arm of Microsoft undoubtedly a nod to where Microsoft wants to head in the future.
Furthermore, Microsoft’s mobile business is hardly a failure. Windows Phone now commands a double-digit marketshare in Europe, and with BlackBerry (BBRY) abdicating the consumer market for smartphones that will only continue to grow. The integration of Nokia (NOK) hardware as a result of a $4.9 billion buyout proposal late last year will fuel momentum, too, and provide a platform for growth going forward.
With its stock at a fair value, dividends sustainable and tons of cash on the books, patient investor looking for tech dividend stocks should give MSFT a shot. It might just prove its potential.
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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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