3 Under-the-Radar Tech Stocks Growing Dividends at a High Rate
Investors usually don't think of tech stocks when it comes to dividends, but these names combine growth and solid payouts.
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Technology stocks are not closely associated with dividend payouts. Instead, the sector is more closely linked with growth names.
However, this has changed somewhat in recent years, and now many technology stocks pay dividends to shareholders. And, thanks to their strong profitability and free cash flow, tech stocks can grow their dividends at a high rate each year.
Let's discuss three under-the-radar tech stocks that combine growth and dividends.
Dividend Tech Stock #1
Maximus, Inc. MMS is an operator of government health and human services programs in the United States, United Kingdom, Canada, Australia, and Saudi Arabia. The company offers business process services (BPS) to improve the cost-effectiveness, efficiency, and quality of government-sponsored benefit programs, such as Medicaid, Medicare, Health Insurance BC, and child support programs.
Most of its revenue is derived from long-term contractual arrangements with governments around the world. The largest segments by revenue are U.S. Health & Human Services (39% of 2023 revenues; 55% of operating profit) and U.S. Federal Services (45%; 41%).
On February 7, Maximus released its first-quarter fiscal 2024 results for the period ending December 31, 2023. For the quarter, the company reported revenue of $1.33 billion, which represents a 6.2% increase over revenue of $1.25 billion for the prior-year period. Organic growth was 6.9% and driven by expanded programs as well as resumed programs tied to Medicaid redeterminations.
Reported adjusted earnings per diluted share for the same periods were $1.34 and $0.94, respectively, and represented an increase of 43% year-over-year. U.S. Federal Services Segment revenue for the first quarter increased 9.5% to $677.1 million, compared to $618.2 million reported for the prior-year period. All growth was organic and driven primarily by volume growth on expanded programs.
Maximus updated its 2024 earnings and cash flow forecasts upward after strong first-quarter results and a better margin outlook. For fiscal year 2024, revenue is expected to range between $5.05 billion and $5.2 billion, and adjusted diluted earnings per share between $5.20 and $5.50. The company has grown earnings by 6.8% per year over the past decade and 7.7% over the past five years. We expect earnings to increase by 10% per year for the next five years.
During the past five years, the company’s dividend payout ratio has averaged around 27%. Maximus’ dividend is comfortably covered by earnings.
MMS shares currently yield 1.4%.
Dividend Tech Stock #2
Littelfuse Inc. LFUS is a global manufacturer and distributor of circuit protection, power control, and sensing products, operating across the Asia-Pacific, the Americas, and Europe. The company is divided into three segments: Electronics, Transportation, and Industrial.
The Electronics segment provides a range of products such as fuses, resettable fuses, suppressors, varistors, and semiconductor components, serving diverse markets like automotive, telecommunications, and alternative energy. The Transportation segment makes fuses, switches, relays, and sensors primarily for heavy-duty vehicles. The Industrial segment specializes in fuses, relays, transformers, and sensors for various applications, including renewable energy, HVAC, and industrial automation, catering to various industries.
On January 30, the company announced results for the fourth quarter of 2023. Littelfuse reported non-GAAP EPS of $2.02, in-line with estimates. The company reported revenues of $533.8 million for the quarter, down by 13.0% year-over-year. Full-year net sales were $2.4 billion, which was a decline of 6% versus the prior year on a GAAP basis.
The company also achieved a record cash flow from operations of $457 million and a free cash flow of $371 million. The CEO expressed optimism for 2024, which appears poised for growth on the back of the company's varied portfolio, backed by strong technological offerings and an optimized cost structure.
Looking forward, Littelfuse anticipates continuing dynamic macro conditions but remains confident in its improved cost structure, robust balance sheet, and capabilities in optimizing cash flow, setting a positive outlook for 2024.
With our EPS growth forecast of 15.0% over the next five years, the estimated EPS by 2029 stands at $19.28. Moreover, the company has a solid record of paying dividends despite operating in a cyclical sector, as Littelfuse has paid increasing dividends for the past 14 years.
LFUS stock currently yields 1.1%.
Dividend Tech Stock #2
Open Text Corp. OTEX is a tech company that provides information management solutions, including cloud solutions, globally. Its annual revenue surpassed $4 billion in fiscal 2023. Its annual recurring revenue (ARR) represents about 75% of total revenue. ARR include revenues from cloud services and subscriptions, and customer support.
Open Text reported its fiscal second-quarter 2024 results on February 1. It continues to integrate Micro Focus, stating that it will integrate it into its operating model by the end of the fiscal year.
For the quarter, revenue rose 71% year over year to $1.53 billion, including ARR rising 58% (cloud revenue up 10%, while customer support revenue up 120%) to $1.15 billion. Adjusted EBITDA, a cash flow proxy, jumped 66% to $566 million with a margin of 36.9%. Adjusted EPS was $1.24, which was up 39% YOY. Open Text expects the adjusted EBITDA margin to be 36-37% this fiscal year.
From fiscal 2014-2023, Open Text grew its EPS by 7.7% per year. It started paying a regular quarterly dividend in the middle of fiscal 2013. Since 2014, it has increased its dividend per share by 13.5% per year.
The key growth driver of Open Text is mergers and acquisitions activity. According to Crunchbase, since inception OTEX has made 47 acquisitions, including Micro Focus. Currently, Open Text expects organic growth of 1-2% in fiscal 2024.
OTEX’s net leverage ratio is about 3.7x, which it forecasts to improve to less than 3.0x by the end of fiscal 2025. Its payout ratio is low at roughly 24% for the current fiscal year, and the company generates substantial cash flow. Its dividend is covered and it should be able to deleverage in a timely manner.
OTEX stock currently yields 2.6%.
At the time of publication, Ciura had no positions in any stocks mentioned.