These Three Tech Stocks Are Wired for Dividends
Despite their reputation as purely growth plays, technology names can offer dividend pay outs.
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The technology sector is usually associated with growth and not with dividend payouts.
But the truth is, many Nasdaq 100 stocks pay dividends to shareholders. And, thanks to their strong profitability and free cash flow, big tech stocks can grow their dividends at a high rate each year. This article will discuss three major tech stocks that combine growth and dividends.
Qualcomm Inc.: Going Strong for 22 Years
Qualcomm QCOM develops and sells integrated circuits for use in voice and data communications. With annual sales of around $38 billion, the chip maker receives royalty payments for its patents used in devices that are on 3G, 4G, and 5G networks.
Qualcomm increased its quarterly dividend in April by 6.3% to $0.85, marking the company’s 22nd consecutive year of dividend growth. The company reported third-quarter fiscal 2024 earnings in July, revealing revenue grew 11.3% to $9.39 billion, which was $170 million above estimates.
Adjusted earnings-per-share of $2.33 compared favorably to $1.87 in the previous year and was $0.07 better than expected. For the quarter, revenues for Qualcomm CDMA Technologies, or QCT, improved 12% to $8.07 billion. Handset sales increased 12% to $5.9 billion while automotive sales surged 87% to $811 million.
Internet of Things continues to be weak, with revenue falling 8% to $1.36 billion, though this was a slowdown from the preceding quarters. Qualcomm Technology Licensing, or QTL, grew 3% to $1.27 billion. Qualcomm repurchased seven million shares at an average price of $185.71 during the quarter. The company again noted that its products will be important in the ramp up in AI. Qualcomm is now projected to earn $10.04 in fiscal year 2024.
Qualcomm’s EPS declined almost 16% during the last recession. The company has grown EPS at a rate of 5.4% per year over the last decade, but that growth rate accelerates to nearly 21% for the last five years. Agreements with major handset providers, a lower share count, leadership in 5G, and AI should allow the company to grow in the coming years.
With a projected dividend payout ratio below 40% for 2024, QCOM has a safe dividend. The company has increased its dividend for 22 consecutive years.
Broadcom: A Safe Bet
Broadcom AVGO designs, develops, and sells semiconductors under the following business units: Wired infrastructure, wireless communication, enterprise storage and industrial. Its offerings include data center chips, factory automation, energy systems and power generation, broadband access, and home connectivity. Broadcom is a fabless semiconductor company, which means that the products it designs are manufactured by other companies/foundries.
Broadcom reported its second-quarter earnings results on June 12, showing revenues of $12.5 billion during the quarter, a 43% jump compared to the prior year’s quarter. The strong revenue growth was driven by AI data center investments by many of Broadcom’s customers as well as by mergers, primarily the VMWare takeover.
The company outperformed revenue expectations easily. Broadcom reported EPS of $10.96 for the fiscal second quarter, which was ahead of the analyst consensus estimate. The company expects that revenues will come in at around $51 billion during the current fiscal year, which would represent a nice revenue increase compared to the previous year. Broadcom’s acquisition of VMWare will be a growth tailwind for the company during the current year.
Broadcom’s biggest market is wireless communication, where the company owns a strong connectivity portfolio that includes advanced LTE, Bluetooth 5.x, Wi-Fi, and GNSS (GPS, Galileo). Broadcom is also well positioned in the enterprise storage market, where it provides switching and other connectivity services and storage products such as SSD controllers.
These markets will continue to grow, and even without any major acquisitions, Broadcom’s revenues should continue to grow. The combination of acquisitions and organic growth should result in solid revenue growth and increasing tailwinds for profitability stemming from improving economics of scale.
Broadcom’s dividend still looks relatively safe, as it is well-covered by both EPS as well as free cash flow. AVGO stock currently yields 1.3%.
Cisco Has a System for Dividends
Cisco Systems CSCO is the global leader in high performance computer networking systems. The company’s routers and switches allow networks around the world to connect to each other through the internet. Cisco also offers data center, cloud, and security products. Cisco employs more than 79,000 people and generates almost $54 billion in annual revenues.
Cisco announced a 2.6% dividend increase in February in the quarterly payment to $0.40.
The company reported fourth-quarter and annual earnings early this month, revealing revenue fell 10.3% to $13.6 billion, but this was $100 million ahead of estimates. Adjusted EPS of $0.87 compared unfavorably to adjusted EPS of $1.14 in the prior year, but this was $0.02 more than expected.
For the year, revenue declined 6% to $53.8 billion while adjusted EPS of $3.73 compared to $3.89 in the prior fiscal year. This was the second quarter that included the company’s acquisition of Splunk, which contributed $4.3 billion to the annualized recurring revenue total of $29.6 billion. For the most recent quarter, Networking declined 28%, Security surged 81%, Collaboration was once again flat, and Observability was up 4127%.
By region, the Americas decreased 4%, Europe, the Middle East and Africa were lower by 7%, and Asia-Pacific, Japan and China were down by 8%. Total gross margins expanded 30 basis points to 64.4%. Deferred revenue grew 11% to $28.5 billion. Cisco repurchased 43 million shares at an average price of $46.80 during the quarter.
The company’s remaining share repurchase authorization is $5.2 billion, or 2.6% of the current market cap. Cisco provided an outlook for fiscal year 2025 as well, with the company expecting revenue in a range of $55 billion to $56.2 billion. Adjusted earnings-per-share is projected in a range of $3.52 to $3.58.
Cisco ended the most recent quarter with $17.9 billion in cash and equivalents and investments. Given the cash on the balance sheet, it is likely that Cisco would be able to continue to pay a dividend even in the event of an extended recession.
At the time of publication, Ciura had no positions in any stocks mentioned.