When the topic of tech stocks comes up, chances are, you’re not really thinking about any underlying dividends. Instead, the top innovators generally tend to be capital-gains-oriented investments. Usually, that’s by design. Companies like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) need to constantly reinvest their earnings into the business for future advancements or expansions.
Still, not all tech stocks abide by the principle of growth at all costs. Many choose to reward their shareholders with passive income. Both sides have their pros and cons. That said, during a time when innovators already enjoyed explosive growth in the prior year, it may be better to focus on consistently profitable entities that provide dividends.
In other words, it could make sense to rotate into risk-mitigated investments while still being exposed to top-tier technical advancements. On that note, below are tech stocks to buy for passive income.
NXP Semiconductors (NXPI)
A Dutch semiconductor designer and manufacturer, NXP Semiconductors (NASDAQ:NXPI) specializes in processors and microcontrollers used in various connected systems. These products cover applications used in various industries, including automotive, consumer electronics and automation. For investors, the beauty of NXPI is that it performed decently well in the past year but it still lags the broader tech index.
From a contrarian standpoint, that makes NXPI one of the tech stocks to buy for passive income. For those seeking capital gains, the global microcontroller market reached a valuation of $32.37 billion last year. Experts project that the segment may expand at a compound annual growth rate (CAGR) of 11.6% by 2030. If so, the growth will culminate in sector revenue of $69.87 billion.
And that’s just one area of NXP’s business. On the passive income front, the company offers a forward yield of 1.85%. While not overwhelmingly generous, the payout ratio sits at 25.27%, implying little concern about yield sustainability. Thus, it’s one of the tech stocks to buy for passive income.
Taiwan Semiconductor (TSM)
A multinational semiconductor contract manufacturing and design company, Taiwan Semiconductor (NYSE:TSM) plays a critical role in the global computer chip value chain. Per its public profile, TSMC represents the world’s largest dedicated independent semiconductor foundry. If you want to know why geopolitical news in the surrounding region is such a hot topic, just look at TSM. It’s one of the tech stocks that if it goes down, it could take down the world economy.
Of course, there’s a much more positive, encouraging reason to consider TSMC: a viable candidate for tech stocks to buy for passive income. First, the company fabricates chips for leading-edge technology companies that have become household names. Second, the global semiconductor foundry business can expand at a respectable 8.1% CAGR to hit $231.5 billion by 2032. You certainly don’t want to ignore this super-relevant enterprise.
Currently, the company offers a forward dividend yield of 1.92%. Again, it’s not the most generous deal out there. However, the payout ratio sits at 28.97%. With a strong earnings report in hand, TSM is worth consideration among tech stocks.
Qualcomm (QCOM)
A top-tier innovator primarily in the wireless communications ecosystem, Qualcomm (NASDAQ:QCOM) creates various sector-related semiconductors, software, and services. It owns patents that cover a broad range of mobile communications standards. Over the past one-year period, it has performed decently well. However, it’s really come alive in late October. Better yet, it’s been carrying the momentum into 2024.
Fundamentally, the beauty of Qualcomm is that it enjoys multiple avenues to explore. Further, each one of these avenues offers tremendous growth. For example, the global 5G services market size reached a valuation of $84.31 billion last year. And experts project that the segment could see expansion to the tune of a 59.4% CAGR. If so, we’re talking about sector revenue of over $2.2 trillion by 2030.
Regarding dividends, Qualcomm carries a forward yield of 2.09%. That’s notably better than the tech sector’s average yield of 1.37%. What’s more, the payout ratio sits at just under 30%, a very sustainable figure. Therefore, it’s one of the tech stocks to buy for passive income.
Benchmark Electronics (BHE)
Based in Tempe, Arizona, Benchmark Electronics (NYSE:BHE) provides contract manufacturing services for various electronic devices and systems. These services cover multiple sectors and applications, including aerospace, medical, communications and complex industrials. It’s a quiet enterprise, posting a rather unimpressive performance in 2023 if we’re being perfectly honest. Still, rising relevancies could make BHE one of the tech stocks to buy for passive income.
Benchmark falls under the electronics manufacturing services (EMS) industry. That’s significant because the segment may reach a valuation of $580.52 billion by year’s end. Further, experts believe the space could reach $773.22 billion by 2029. If so, that would translate to a CAGR of 5.9%. It may be a slower growth segment of the wider tech ecosystem. Still, its importance should keep the lights on at Benchmark.
Plus, patient investors can benefit from the forward dividend yield of 2.48%. Enticingly, the payout ratio sits at 21.78%, providing investors with confidence regarding yield sustainability. Also, Lake Street sees BHE as a “buy” with a $29 price target.
Hewlett Packard Enterprise (HPE)
Moving over to the higher-risk, higher-(passive)-reward segment of tech stocks, Hewlett Packard Enterprise (NYSE:HPE) is a multinational information technology (IT) company. Based in Spring, Texas, Hewlett Packard focuses on servers, storage, networking, containerization software and consulting and support. As with Benchmark above, HPE’s 52-week performance is – to put it diplomatically – unremarkable. Still, it could potentially deliver the goods this year.
With the usual suspects hogging up the spotlight, HPE sits in the background. That makes it an intriguing contrarian play. More importantly, the global data center market – which HPE addresses via its servers – reached a valuation of $194.81 billion in 2022. Experts anticipate that the sector could expand at a CAGR of 10.9% from 2023 to 2030. If so, we’re talking about sector revenue of $437.33 billion.
In terms of dividends, Hewlett Packard offers a forward yield of 3.35%. Not only is that generous, the payout ratio sits at 24.46%, providing investors with confidence. Thus, it’s an intriguing idea for tech stocks to buy for passive income.
American Software (AMSWA)
In a business world that has seemingly gone extremist in the use of word salad, I really appreciate American Software (NASDAQ:AMSWA). Unlike other companies that almost appear to be in the business of confusing investors and analysts alike, American Software is direct and to the point: it provides “demand-driven supply chain management and enterprise software solutions backed by more than 45 years of industry experience.” Boom! No more explanation necessary.
Let’s look at this matter objectively. According to Grand View Research, the global supply chain management (SCM) market size reached a value of $21.13 billion in 2022. Further, experts anticipate that the segment could expand at a CAGR of 11.1% from 2023 to 2030. At the culmination point, total industry revenue should reach around $48.59 billion. Undergirding demand is a broader realization of the benefits of SCM protocols.
Turning to the dividends, American Software offers a forward yield of 3.7%. To be fair, the payout ratio is elevated at 78.97%. However, the company benefits from consistent profitability. As well, analysts peg shares a unanimous strong buy with a $16 average price target. That all makes for a compelling case for tech stocks to buy for passive income.
Information Services (III)
Moving from clear descriptions to more opaque verbiage, Information Services (NASDAQ:III) bills itself as a leading global technology research and advisory firm. Its website then goes on to talk about clients, vision, rapid changes, and digital investments among other buzzwords. Digging into the thick foliage of word salad, it seems Information Services is in the business of providing information technology (IT) consulting and business process outsourcing (BPO) services.
Okay, so, III makes a compelling play for both tech stocks to buy for passive income and capital gains. According to Grand View Research, the global BPO market reached a valuation of $261.9 billion in 2022. Experts anticipate that the sector could expand at a CAGR of 9.4% from 2023 to 2030. At the end of the forecast, total industry revenue could be $525.2 billion.
Enticingly, III features a market capitalization of only $219 million. In theory, blue skies lie waiting.
Looking at the dividend front, the company carries a forward yield of 4.02%. Further, the payout ratio is quite reasonable at 40%. Adding to the tempting profile, III trades at only 8.94X forward earnings, lower than the sector median 24X.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
