Tech stocks have traditionally been associated with growth, not income. While this reputation is still true on the whole, there are now many top tech stocks that are dividend stocks and pay income to shareholders.
Dividend paying tech stocks also offer growth, making them appealing for investors looking for a blend of growth and income. There are select stocks that offer both, and in this article, we’ll take a look at three technology stocks we think offer strong growth prospects, along with rising dividend income over time.
Stocks like these can help investors generate wealth through both capital appreciation, and dividend income.
The three dividend stocks are:
- Micro Focus International plc (NYSE:MFGP)
- Skyworks Solutions Inc (NASDAQ:SWKS)
- Microchip Technology Incorporated (NASDAQ:MCHP)
Dividend Stocks: Micro Focus International plc (MFGP)
Our first stock is Micro Focus, an enterprise software company that is based in the United Kingdom. The company offers infrastructure software products that include application modernization and connectivity, application delivery management, IT operations management, security and information management, and governance.
Micro Focus integrates its offerings with Microsoft products to reduce government clients’ infrastructure costs. The company was founded in 1976, generates just under $3 billion of annual revenue, and trades with a market capitalization of $1.65 billion.
Micro Focus’ most recent earnings showed somewhat weak results for the first half of the fiscal year, which ended on April 30. The company reported earnings-per-share of 66 cents, a decline of 8.3% year-over-year.
Revenue was off 4.6% to $1.4 billion, which was a continuation of weakness from the second half of the prior year. Licensing revenues were up 10% in the first half of the year, but this was offset by declines in other parts of the business.
Adjusted EBITDA was down 7.7% to $519 million, while adjusted EBITDA margin was off 130bps to 37.7%. While these results were weak, they were improvements upon the second half of the prior fiscal year, indicating the worst may be behind the company’s results at this point. The company guided for $1.31 in earnings-per-share for the full-year, which ended in October.
Micro Focus is trading at just 4.1 times this year’s earnings estimates, which is just 58% of fair value. We also see the company as producing about 4% annual earnings growth, and it pays shareholders a 4.6% dividend yield.
Combined, we see Micro Focus as having the potential to produce total returns of 18% annually in the coming years.
Skyworks Solutions Inc (SWKS)
Our next stock is Skyworks Solutions, a company that designs, develops, manufactures and markets proprietary semiconductor products globally. The company’s portfolio includes attenuators, amplifiers, converters, wireless analog system on chip products, LED drivers and more.
These products are used in aerospace, automotive, cellular infrastructure, wearable products, connected home, gaming and other industries
Skyworks was founded in 1962, generates about $5 billion in annual revenue, and trades with a market capitalization of nearly $27 billion.
The company reported fourth-quarter and full-year earnings on Nov. 4 and results were quite strong. Revenue soared 37% year-over-year to $1.3 billion, which also beat analyst estimates. For the full year, revenue was up 52%. Adjusted operating income was $488 million in the fourth quarter, and adjusted earnings-per-share came to $2.62. For the fiscal year, adjusted earnings-per-share came to $10.50, up 71% year-over-year.
Skyworks is in the midst of acquiring the infrastructure and automotive business of Silicon Labs, which the management team believes will fuel further growth in the future. We expect the company to earn $11.57 per share in the fiscal year that just began, which would represent an increase of 10% from fiscal 2021’s outstanding results.
Skyworks’ dividend yield isn’t particularly enticing at 1.4%, but that’s still as good as the broader market. We see Skyworks’ value in its growth potential, which we put at 10% annually, and its reasonable price, trading about 7% below our fair value estimate.
Overall, we see these factors as producing the potential for 13% total annual returns in the next five years.
Dividend Stocks: Microchip Technology Incorporated (MCHP)
Our final stock is Microchip Technology, a company that develops, manufactures, and sells semiconductor products for various embedded control applications globally. Microchip offers general purpose microcontrollers, embedded microprocessors, microcontrollers for automotive, industrial, connectivity, and computing applications, along with a variety of other related products.
Microchip was founded in 1989, generates just over $6 billion in annual revenue, and trades with a market capitalization of $46 billion.
Microchip reported second-quarter earnings on Nov. 4 and results showed very strong improvements year-over-year. Total sales were $1.65 billion up 26% year-over-year to a new quarterly record. Higher revenue was attributable to execution on the company’s sizable backlog, as well as strong underlying demand despite manufacturing capacity constraints for its customers.
Gross margins hit a record 65.3% of revenue for the quarter, which, combined with record revenue, produced record net income of $1.07 per share on an adjusted basis. We’ve boosted our outlook for earnings-per-share to $4.50 for this year, which would very easily represent a record year of earnings for the company.
We see Microchip as having the potential for very robust 12% annual earnings-per-share growth from here, making up the bulk of expected annual returns. The company’s stock is right at fair value, so we see essentially no impact from the valuation moving in the coming years.
The dividend yield is slightly below market at 1.1%, so it isn’t a huge source of income. However, when we combine these factors, we still see the potential for 12%+ annual total returns for shareholders in the coming years.
Final Thoughts
When selecting stocks to own for the long term, investors have plenty of choice. We see the best picks as stocks that combine more than one favorable characteristic, such as growth and income, because that tends to lead to the fastest compounding.
Tech stocks have not been known for their dividend payouts. Instead, investors have typically purchased utilities or real estate investment trusts for dividends. But this has changed in the past decade, with many tech stocks now paying dividends to shareholders.
The three tech stocks discussed above all carry with them the ability to generate income and take advantage of what should be strong growth rates in the years ahead. We rate all three of these under-the-radar tech stocks as buys and think they will produce strong returns for shareholders.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
