Fresh off reaching the 6,000 mark milestone since its inception 46 years ago, the Nasdaq Composite index — home to some of the world’s largest technology companies — is trading near all-time highs. So, good luck finding tech stocks that are trading at discount prices.
The current bull market, now in its eighth year and counting, has invited tons of new investors to the market. Indeed, there are tons of reasons to remain optimistic. Corporate earnings are on the rise and unemployment continues to fall. And not only is the housing market still booming, President Trump’s pro-growth policies have yet to kick in.
Nevertheless, all of these scenarios also mean that the next bear market is inching much closer.
To that end, protecting current gains is paramount. And how you construct your portfolio from this point forward matters. But you don’t have to sacrifice growth for protection, if you know where to look.
Today, we’re going to look at three tech stocks that you can buy now and forget about for the next decade, in large part because of their ability to generate and stash large piles of cash. Big war chests and high cash flow give these companies seemingly infinite options for game-changing acquisitions, as well as the ability to improve their dividends over time.
These three stocks are poised to deliver double-digit total returns every year on average thanks to both growth stories and improving payouts. In no particular order …
Cash-Rich Tech Dividend Aristocrats: Apple (AAPL)
Dividend Yield: 1.7%
Cash and Investments: $257 billion
2016 Operating Cash Flow: $65.8 billion
First on the list is Apple Inc. (NASDAQ:AAPL).
Apple’s dividend has grown each year since the tech giant brought its dividend back in 2012. Last week, the iPhone maker increased its quarterly dividend by 10.5% to 63 cents per share. The recent increase pushed the forward yield to 1.7% — fairly modest.
But while the yield is still about 30 basis points below the S&P 500, it’s only one aspect of the company’s capital return program. Buoyed by an additional $50 billion increase to its buyback authorization, Apple’s cumulative capital return plan now stands at a robust $300 billion, which it expects to complete by the end of March 2019.
Beyond the dividend, there are two main factors to be excited about: Apple’s cash and Apple’s potential growth.
With $257 billion in cash on the balance sheet, Apple has tons of options, including additional capital returns, acquisitions or investments in growth. Apple stock, which on Monday surged beyond $150 for the first time, only trades at about 12 times forward earnings estimates when backing out the cash, meaning shares are still cheap.
My opinion? AAPL stock is poised to reach $175 when the iPhone 8 is released in the fall.
Cash-Rich Tech Dividend Aristocrats: Microsoft (MSFT)
Dividend Yield: 2.2%
Cash and Investments: $133 billion
2016 Operating Cash Flow: $33.3 billion
Next on the list is Microsoft Corporation (NASDAQ:MSFT), which has staged an impressive turnaround under new CEO Satya Nadella.
Once tied to the fledgling PC market, the world’s largest software company has successfully carved out a position in the cloud and now competing head on with Amazon.com, Inc. (NASDAQ:AMZN). MSFT stock has skyrocketed some 90% since Nadella’s arrival three years ago. The Nasdaq Composite is up about 50% during that span.
Aside from the strong surge, Microsoft pays an annual dividend of $1.56 per share that yields 2.26% annually. Thanks to the $10.66 billion of operating cash flow generated last quarter and $8.97 billion of free cash flow, Microsoft ended the quarter with $133 billion in cash and other investments. The company’s cash has fueled shareholder returns, including some $9 billion in dividends and another $10 billion in buybacks over the past three quarters alone.
In fairness, MSFT stock isn’t cheap at a forward P/E of 20, but its cash flow continues to pile up thanks to its cloud platform, which now has an annual revenue run rate of more than $15 billion and is home to some 85% of the Fortune 500 companies.
Cash-Rich Tech Dividend Aristocrats: Cisco Systems (CSCO)
Dividend Yield: 3.5%
Cash and Investments: $72 billion
2016 Operating Cash Flow: $13.5 billion
With a strong annual yield well above 3%, Cisco Systems, Inc. (NASDAQ:CSCO) completes our list of dividend tech stocks to buy.
While Cisco is no longer dominating tech as it did in the 1990s, more than 50% of Cisco’s equipment still powers traffic on the internet. And if you’ve held CSCO stock, which has risen 30% over the past year and is up 13% year-to-date, it has powered your portfolio too.
Plus, there’s growth in the horizon.
Aided by multiple large acquisitions, Cisco continues to diversify the business beyond its traditional core switching and routing segments. Gains in the realm of security, Internet-of-Things and software-defined networking (SDN) continue to be good hedges against declining market share in legacy hardware businesses. And as with Apple and Microsoft, Cisco is sitting on a massive pile of cash, which has grown to $72 billion.
Cisco’s war chest gives the company the ability to finance multiple large acquisitions in the quarters and years ahead without taking on additional debt. And with a forward P/E of 13, which is attractive relative to large-cap technology peers, Cisco stock is not only safe from a cash perspective, but is also attractive to growth and income investors.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.