The tech sector isn’t known for its dividends. The sector is famous for dynamic, growth-oriented companies that are big on promise, but often lack the consistent profits and free cash flow necessary to fund big dividends.
However, there are many tech stocks that pay dividends. Let’s look at three that income-oriented investors should consider.
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1. International Business Machines
First up is International Business Machines (NYSE: IBM). To start, let’s acknowledge that IBM has long been a laggard within the tech industry. Indeed, over the last 10 years, IBM’s revenue declined by 38%, and its share price fell by 13% over the same period.
Yet IBM’s massive dividend — the stock currently boasts a dividend yield of 4.2% — has ridden to the rescue over the past decade. The stock’s total return (which includes dividend payments) is a far more respectable 36%, with almost all of that gain coming over the last 12 months.
IBM Total Return Level data by YCharts
What’s more, the company’s long-promised strategic shift finally appears to be paying off. Revenue increased 20% over the last three years, as the company welcomed numerous partnerships in the lucrative cloud services sector.
Granted, IBM stock does have one weakness that could turn off some investors: its valuation. Shares trade at a price-to-earnings (P/E) multiple of 21x, placing it on the upper end of the range for the value-oriented investor. That said, other valuation measures are more favorable. The company’s price-to-sales (P/S) ratio, for example, is 2.4x — far more reasonable, and, in fact, cheaper than some other legacy tech stocks.
At any rate, dividend-seeking investors should keep IBM in mind due to its fat dividend and revitalized revenue growth.
2. AT&T
Next is AT&T (NYSE: T). Like IBM, AT&T has also relied on a massive dividend to compensate for its sinking stock price. Shares of AT&T currently trade for less than $18/share, down more than 34% from where they traded in 2014.
However, AT&T’s fat dividend has more than made up the difference. The stock’s total return over the last 10 years is a gain of 40%.
T Total Return Level data by YCharts
Currently, AT&T pays a dividend of $1.11/share, which equates to a dividend yield of 6.4%. That’s one of the biggest dividend yields within the tech sector.
True, AT&T did slash its dividend in 2022 for the first time in 35 years. However, that move — while painful — has paid off. The company has paid down more than $30 billion in long-term debt since the dividend cut, bringing its total long-term debt to $133 billion.
While that’s still a ton of debt, AT&T is now in a far better position to service that debt with its almost $20 billion in annual free cash flow. In short, the company’s big dividend looks safe.
As for valuation, AT&T shares boast a tiny price-to-earnings (P/E) multiple of only 7, making the stock quite attractive to value-oriented investors.
3. Cisco Systems
Last is Cisco Systems (NASDAQ: CSCO). This Web 1.0 giant is more than just alive and kicking — it’s thriving. The company, which designs and makes networking products, generated $13.6 billion in net income on $58 billion in revenue over the last 12 months.
Moreover, the company’s free cash flow — the lifeblood that makes hefty dividends possible — increased to $16.3 billion. Speaking of its dividend, Cisco pays $1.56/share, good for a 3.1% dividend yield — not at all shabby, and more than double the S&P 500 average of 1.4%.
What’s more, Cisco isn’t just a cash cow; the company is still growing at an impressive rate. Cisco grew revenue by 21% over the last 10 years, and free cash flow has surged by 53% over the same period.
CSCO Revenue (TTM) data by YCharts
Better still, value-oriented investors need not fret. Cisco’s P/E multiple of 13x makes it far cheaper than the S&P 500 average (24.6x).
In short, investors can get good value, and an attractive dividend from a company that is growing handsomely. All that makes Cisco a must-know name for income investors looking for a solid dividend-paying tech stock.
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Jake Lerch has positions in AT&T and International Business Machines. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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