3 High-Yield Tech Stocks to Buy in May

3 High-Yield Tech Stocks to Buy in May

Posted On May 14, 2020 6:24 pm

If you want to beat the market, you should seriously consider dividend investing. According to research from Hartford Funds, 78% of the S&P 500’s total return from 1970 to 2019 can be attributed to reinvested dividends and the magic of compounding.

While the growth-oriented tech sector might not be a familiar place for some dividend investors, many technology stocks break the mold by offering market-beating yields.

Here is a list of three such high-yield tech companies. The first pick, Texas Instruments (NASDAQ:TXN), is a bet on the lucrative computer hardware industry, while the other two, IBM (NYSE:IBM) and Cisco Systems (NASDAQ:CSCO), are investments in the fast-growing IT sector. All three stocks pay dividends above 3% and have increased their payouts for over eight years running.

Texas Instruments: Current dividend yield of 3.3%

For many, the name Texas Instruments brings back bad memories of those giant graphing calculators from school. But the company is primarily a manufacturer of semiconductors and other B2B (business-to-business) hardware products. This is a lucrative but competitive industry with high entry costs for new competitors, giving Texas Instruments a solid moat that can sustain its revenue for years to come.

While Texas Instruments’ memory and computing business will benefit from long-term megatrends toward automation in the industrial and automotive sectors, the business is mature, and investors shouldn’t expect its top line to grow very quickly. Revenue has grown at a compound annual rate of just 2.6% since 2015. But despite its mature top line (which hit $14.4 billion last year), Texas Instruments returns billions to shareholders through robust capital return policies such as its dividend and share repurchases.

Texas Instruments stock sports a 3.3% yield as of this writing, and it has increased its payout for an impressive 15 years running. The dividend cost the company $3.0 billion in 2019 compared to a net income of $5.0 billion, giving it a payout ratio of 60%. The dividend is supported by a massive share repurchase program that saw the company buy back $3.0 billion of shares in 2019 and $5.1 billion in 2018.

IBM: Current dividend yield of 5.4%

Fondly known for its question-answering machine, Watson, IBM is one of America’s oldest technology blue-chips. The company has moved away from the hardware and mainframe business that defined it last century into cutting-edge fields like cloud computing and big data solutions.

While IBM revenue has been stagnant for the last decade with a 5.6% decline since 2015 — the company’s revenue mix has changed dramatically. In 2013, cloud represented only 4% of the top line; now that number is 27%. The cloud and cognitive division continues to grow faster than the rest of the company, rising 4.5% to $23.2 billion in 2019 while every other segment declined (except global business services which only grew 0.2%). The cloud division also boasts higher margins than the rest of the company, with a 76.7% gross margin compared to 27.7% in global business services and 34.8% in global technology services.

IBM stock currently yields 5.4%, making it the most generous dividend payer on this list. However, its payout ratio was a solid 61% last year, and like Texas Instruments, the company has been reducing its share count after buying back over $6 billion of stock in the past two years. IBM recently earned Dividend Aristocrat status with a 25-year record of annual dividend increases. And management is confident in their ability invest in future growth drivers while returning value to shareholders through the dividend and buybacks.

Cisco Systems: Current dividend yield of 3.4%

Cisco is another stock that should be on every dividend investor’s radar. The company operates a mature business designing and selling internet-based goods and services. And while annual revenue growth has averaged just 2% over the last five years, Cisco has…

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