5 Tech Stocks To Buy With Monster Yields
With high margins and generous cash flow, a handful of tech companies offer generous dividends
The technology sector is seeing strong growth today driven by developing areas such as Internet of Things, cybersecurity, artificial intelligence and data and analytics. All of which feature plenty of ripe stocks to buy.
Technology companies are generally characterized by high margins and strong free cash flows, as their business models are generally asset light in nature. As a result, many of them have the ability to pay large dividends once their overall growth rate matures and it makes sense to return more capital to shareholders.
Using our Dividend Safety Scores, we found five technology and technology-related infrastructure stocks that have durable competitive moats and pay generous dividend yields. These companies qualify as some of the best high dividend stocks.
The tech businesses reviewed below are the No. 1 players across many of their respective products, segments, and geographies.
With a stable source of demand for their products and services, growing end markets, and a proven commitment to paying safe dividends, these five tech stocks to buy with high yields are worth a closer look.
High-Yield Tech Stocks to Buy: Cisco (CSCO)
Dividend Yield: 3.40%
Dividend Growth Streak: 7 years
Cisco Systems, Inc. (NASDAQ:CSCO) is the global No.1 producer and seller of networking equipment such as routers and switches. It is also a major supplier of communication software delivering a secure and intelligent platform for digital businesses. Cisco has a diversified customer base including businesses of all sizes, public institutions, governments and service providers.
Cisco’s business is organized into three geographic segments: Americas (60% of revenues); Europe, Middle East, and Africa (EMEA – 25%); and Asia Pacific, Japan, and China (APJC – 15%). The company’s products and technologies can be grouped into the following categories: switching, Next-Generation Network (NGN) routing, collaboration, data center, wireless, security, service provider video and other products.
Approximately 75% of its revenues come from products while the balance is derived from services. Management is focused on shifting the company’s mix more into recurring software and service revenue, which account for more than 30% of total sales today.
Cisco’s acquisition strategy has supported this initiative. It has acquired 200 companies in the last 10 years which has helped it expand in new areas such as IoT, application intelligence, AI, and SD-WAN. The company is well positioned to compete in cybersecurity, IoT, next-generation data center and cloud services.
Cisco is a global technology leader spending nearly 13% of its revenues every year on R&D, resulting in a substantial number of patents and trademarks. It also owns a global sales and marketing network spread across almost every major country in the world.
Strong technology leadership in networking hardware and software, a global distribution network, strong customer relationships with major telecom carriers and governments, and a strong balance sheet are Cisco’s key competitive strengths.
As a result, Cisco has successfully raised its payout each year since it started paying dividends in 2011. The company has compounded its dividend by 24.7% annually over the past three calendar years, and management last raised the dividend by 11.5% earlier this year.
Management intends to return at least 50% of Cisco’s annual free cash flow annually to the shareholders, which bodes well for future dividends. Though Cisco’s revenues have remained flat in the last few years, its healthy free cash flow, reasonable payout ratio, and pristine balance sheet allow plenty of room for continued dividend growth.
High-Yield Tech Stocks to Buy: Digital Realty Trust (DLR)
Dividend Yield: 3.21%
Dividend Growth Streak: 12 years
Digital Realty Trust, Inc. (NYSE:DLR) is a real estate investment trust (REIT) that primarily owns and operates data centers. It provides data center, colocation and interconnection solutions for domestic and international tenants.
The company’s revenues can be broadly classified as rental (72% of revenues), tenant reimbursements (16.6%), interconnection (9.5%), fee income (0.3%) and other (1.5%). Geographically 80% of its revenue comes from the U.S. with the rest 20% coming from international operations.
Digital Realty has a strong presence in all major U.S. metropolitan areas where most data centers and technology tenants are concentrated. The company serves a wide range of industries ranging from financial and cloud services, to manufacturing, energy, healthcare and consumer products.
Digital Realty is the 6th largest publicly traded U.S. REIT and owns over 26 million rentable square feet. The company is able to offer its customers flexibility and a global reach with 170 data center facilities located across 11 countries. Besides extensive geographic reach, its contractual terms with customers also offer good cash flow visibility with an average remaining lease term of 5.2 years.
The recently closed DuPont Fabros acquisition will further be accretive to Digital Realty’s financial metrics. The combined entity will become the second largest data center REIT by total enterprise value, providing attractive scale and even better geographic coverage going forward.
Data centers have become an essential infrastructure piece for companies as they provide a secure environment for processing and storage of critical electronic information. With the continued rise of digital information, there should be sustained demand for Digital Realty’s properties.
Digital Realty has increased dividends every year since its IPO in 2014 and last raised its payout by 5.7%. It has grown dividends at an impressive 12.5% annual rate over the last decade and guided 2017 core FFO per share to increase by 5.8%; therefore investors can likely expect dividends to increase at a similar rate as last year.
High-Yield Tech Stocks to Buy: Crown Castle (CCI)
Dividend Yield: 4.08%
Dividend Growth Streak: 3 years
Crown Castle International Corp. (REIT) (NYSE:CCI) is a real estate investment trust held in Bill Gates’ dividend portfolio here. The company operates and leases shared wireless infrastructure. It is America’s largest wireless infrastructure provider with 40,000 towers and 26,500 route miles of fiber located throughout the U.S. and Puerto Rico.
Crown Castle has two operating segments — Towers (88% of 2016 revenues) and small cells (12%). About one-third of Crown Castle’s towers gross margin is derived from the land and properties it owns while the rest is derived from leased and licensed properties.
Wireless communication has become an essential infrastructure in today’s time and Crown Castles’ towers provide mission-critical services for mobile connectivity. The demand for mobile data services continues to grow, ensuring continued demand in the future for Crown Castle’s products and services.
The company enters into long-term contracts with initial terms of 5-15 years, multiple renewal periods of 5-10 years each, annual price escalators, and limited termination rights for tenants. The tenant leases have a weighted-average remaining life of approximately six years and represent $19 billion of expected future cash inflows. Therefore, Crown Castle’s cash flows are highly secure in nature and provide long-term visibility.
Nearly 90% of Crown Castle’s site rental revenue is derived from leading telecom companies like AT&T, T-Mobile, Verizon Wireless and Sprint, which helps ensure safe cash flows. Recurring revenue, an impressive asset portfolio spread across strategic locations, and a customer base consisting of top blue-chip companies are Crown Castle’s biggest advantages.
Crown Castle started paying dividends in 2014, and investors can learn more about the overall safety and growth profile of the firm’s payout here. The company increased its dividend by 7.6% in 2015 and further raised its payout by 11% last year. The company has guided an increase of 18% in adjusted funds from operations next year which should allow it to at least maintain a high single-digit dividend growth rate.
High-Yield Tech Stocks to Buy: Qualcomm (QCOM)
Dividend Yield: 4.27%
Dividend Growth Streak: 13 years
Qualcomm, Inc. (NASDAQ:QCOM) is a global leader in wireless and digital communication technologies. It has pioneered the development of key wireless technologies and standards such as CDMA, 3G, 4G, etc. The company is also the biggest supplier of smartphone application processors (AP) in the world.
Qualcomm operates through two reporting segments: Qualcomm CDMA Technologies or QCT (65% of revenue) and Qualcomm Technology Licensing or QTL (33%). In addition, the company also has a Qualcomm Strategic Initiatives (QSI) segment which makes strategic investments.
Qualcomm makes money by selling chipsets for smartphones and tablets and earning huge recurring profits every year through royalty payments on sales of mobile devices from virtually all global phone manufacturers.
The company is the No.1 player in the smartphone AP market through its Snapdragon range of processors, and key smartphone makers like Samsung, Sony, Apple, and Xiaomi are its customers.
Qualcomm has a significant competitive moat because any mobile communications company intending to develop or sell products using CDMA or LTE technology requires a patent license from Qualcomm. The company owns an extensive portfolio of U.S. and foreign patents and generates billions of dollars in royalty payments every year.
Qualcomm is also leading the industry transition to 5G technology and remains well positioned to benefit from the secular growth trend in communications technology. The company is expanding into other growth areas like IoT, wearables and automotive semiconductors as well. It made a major move into the automotive segment by announcing the acquisition of leading semiconductor player NXP Semiconductors (the combined entity is expected to have over $30 billion in annual revenues).
Qualcomm has grown its dividend at a 16.5% annualized rate over the last decade and has been a consistent free cash flow generator. The company last raised its dividend by 7.5% earlier this year and offers a yield of 4.2%. Given its strong balance sheet and recurring revenues, the company should be able to continue growing dividends at a mid-single-digit rate.
High-Yield Tech Stocks to Buy: Garmin (GRMN)
Dividend Yield: 3.63%
Dividend Growth Streak: 7 years
Garmin Ltd. (NASDAQ:GRMN) is a Swiss-based corporation that is one of the world’s largest sellers of GPS navigation products and services. The company designs, manufactures and sells a wide variety of hand-held, wearable, portable and fixed-mount GPS-enabled navigation and communications products.
Garmin’s business is nicely diversified across five reportable segments business units, including auto (i29% of 2016 revenues), fitness (27%), outdoor (18%), aviation (15%) and marine (11%). The Americas account for approximately 50% of its total revenues, followed by EMEA (37%) and APAC (13%).
Being an early mover in the industry, Garmin has a vast inventory of digital maps that has helped it build a valuable portfolio consisting of more than 1,050 patent and 700 trademarks. The company also consistently invests more than 15% of its revenues on R&D, which helps its products maintain their reputation for high precision and quality. Even the military uses Garmin products.
Convenience, ease of use and value for money are Garmin’s other key differentiators over its competitors, and the company’s vertically integrated business structure leads to a relatively low-cost structure.
The demand for navigation and monitoring technology seems likely to continue growing at a healthy pace in the future with more and more devices such as wearables using GPS. The company is therefore ideally positioned to benefit from this trend.
Garmin has compounded dividends at more than 15% annually over the past decade, although the company’s dividend has remained flat since June 2015. However, the company’s dividend is quite safe thanks to Garmin’s reasonable 55% payout ratio and debt-free balance sheet.
Analysts expect Garmin will grow earnings per share in the low single-digit range over the next two years. Therefore, the company seems likely to continue paying dividends at a similar rate going forward.
Brian Bollinger was long Cisco as of the time of this writing.
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Category: Dividend Stocks
