The technology sector has not historically been known as a good source of dividend stocks. For many tech companies, investment in growth takes priority over returning excess cash to shareholders. But this has begun to change, particularly when it comes to large-cap tech stocks that are highly profitable.
Many tech stocks now pay dividends to shareholders, and some even have higher yields than the S&P 500 average. These three tech stocks, including some poised to benefit from the potential passage of the CHIPS Act, pay dividend yields above 2%, and have increased their dividends for over a decade.
Get Inside Intel
Intel (INTC) is the largest manufacturer of microprocessors for personal computers, shipping about 85% of the world's microprocessors. Intel also manufactures products like servers and storage devices that are used in cloud computing. The company generates about $75 billion in annual sales.
Intel is expected to report earnings next week. When it reported first-quarter results, the company revealed on an adjusted basis, revenue fell just 1%. Adjusted earnings per share clocked in at $0.87, compared to $1.34 in the prior year, but EPS was $0.08 better than expected. Revenue for the personal computer-centric business decreased 13% to $9.3 billion for the quarter, primarily due to component shortages as well as the modem ramp down.
The Datacenter and AI Group segment continues to perform well, with revenue growing 22% to $6.0 billion. Enterprise and government revenue was higher by 53% and unit volumes grew 17%. Network and Edge Group grew 23% to $2.2 billion due to the ongoing recovery from Covid-19 and strong networking demand. Intel saw strong growth rates in its emerging segments. Intel Foundry Services, Accelerated Computing Systems and Graphics Group, and Mobileye grew 175%, 21%, and 5%, respectively. These are among the company's top growth initiatives going forward.
The company generates more than enough cash flow to sustain its dividend, even if a recession hits. Its products are in demand when customers feel that their business is on solid ground and they feel comfortable purchasing more of Intel's offerings. Intel also has a very low dividend payout ratio, making it likely that the company will continue to pay its dividend during a recession.
Intel has increased its dividend for eight consecutive years, including a 5% hike in January 2022. Shares currently yield 3.6%, more than double the S&P 500 average yield.
Qualcomm Quality
Qualcomm (QCOM) develops and sells integrated circuits for use in voice and data communications. The chip maker receives royalty payments for its patents used in devices that are on 3G and 4G networks. Qualcomm has a market capitalization above $160 billion and the company should generate sales of more than $44 billion this year.
Qualcomm, which is expected to report earnings next week, last reported on April 27. when it revealed that in the second quarter of fiscal 2022, revenue surged 41.1% to $11.2 billion, topping expectations by $600 million. Adjusted EPS of $3.21 compared very favorably to $1.90 in the previous year and was $0.29 ahead of estimates.
Revenues for Qualcomm CDMA Technologies, or QCT, grew 52% to $9.5 billion. Handsets, internet-connected devices, radio frequency front-end, and automotive segments grew 56%, 61%, 28%, and 41%, respectively.
Share buybacks are a key component of Qualcomm's earnings-per-share growth. The company repurchased 6 million shares at an average price of $159 during the quarter. Leadership eyes adjusted EPS of $2.75 to $2.95 for the third quarter, above consensus of $2.59.
Qualcomm has a positive growth outlook. The components that Qualcomm produces are considered to be the best available, so phone makers will likely continue using the company's products in future iterations of their devices. This is especially true as 5G launches occur.
An agreement with Apple and Huawei, a lower share count and leadership in 5G should allow the company to grow in the coming years. Demand for 3G/4G/5G headsets will also increase following a recovery from the Covid-19 pandemic.
Qualcomm has increased its dividend for 20 consecutive years, including a 10% raise in April 2022. Shares currently yield 2%. With an expected dividend payout ratio of approximately 24% for 2022, Qualcomm's dividend payout is highly secure, with room for continued dividend growth.
Texas Style
Texas Instruments (TXN) is a semiconductor company that operates two business units: "Analog" and "Embedded Processing." Its products include semiconductors for measuring sound, temperature and other physical data and convert them to digital signals, as well as semiconductors that are designed to handle specific tasks and applications.
Texas Instruments is expected to report earnings next week. It reported its first-quarter earnings results on April 26, showing it generated revenues of $4.9 billion, which represents an increase of 15% vs. the previous year's quarter. This was the result of a revenue increase of 16% in the Analog business, while revenues in the Processing segment grew by 2% year-over-year, which was in line with recent trends. Texas Instruments generated EPS of $2.35 during the first quarter, which was better than the consensus estimate, coming in $0.18 ahead of the analyst community's forecast.
Texas Instruments managed to grow its gross profit margin to an attractive level of 70%, while the company's operating profit margin of 52% came in ahead of expectations as well. The company can generate high margins due to its excellent efficiency. Previously the company had a diversified business model across multiple end markets, but in recent years has streamlined its structure to focus on just two segments-analog and embedded processing equipment. The company has dedicated most of its research and development investment to these two categories, as they have the strongest growth potential while requiring less capital investment.
According to the company, Texas Instruments generated 12% annual growth in free cash flow per share from 2004-2021. In this period, Texas Instruments has increased its dividend every year, at an average growth rate of 25% per year.
The company has increased its dividend for 18 consecutive years. Texas Instruments has a projected dividend payout ratio of approximately 50% for 2022, making for a secure dividend. Shares currently yield 2.8%.
