10 Growing, Dividend Paying Technology Companies at Reasonable Valuations

by: Lenny Grover

When investors look for dividend paying stocks, they do not usually think of the technology sector. In fact, there are a number of dividend paying technology stocks with strong balance sheets, healthy yields, revenue growth, and reasonable valuation multiples. Using the Screener.co stock screener, we can limit our search to companies that trade on US exchanges and meet the following criteria:







Current year dividend per share estimate / Price-closing or last bid






Revenue Change-TTM over TTM



Revenue Change-year over year



Total Debt(NYSE:I)



We are searching for current year yields of at least 0.5%, EV/EBITDA ratios of less than 10, positive revenue growth, and are ensuring that the companies' total debt levels are easily serviceable. As of 4/13/2011, this screen produces 36 results. However, many of these companies are ADRs, and therefore their dividends may be subject to foreign withholding. We can rank companies by current year estimated dividend yield and remove ADRs. The top 10 results are:


Company Name


Intersil Corporation


Intel Corporation


Linear Technology Corporation


Molex Incorporated


KLA-Tencor Corporation


Analog Devices, Inc.


Microsoft Corporation


Hubbell Incorporated


Xilinx, Inc.


TE Connectivity Ltd.

Intersil (NASDAQ:ISIL) is an analog integrated circuit company. While its business is cyclical and its revenue dropped pretty significantly from 2008 to 2009, it recovered nicely in 2010. It is trading at a relatively high multiple for a cyclical business, with a 9.7x EV/EBITDA ratio but is yielding a hefty 3.6%. Being a value-oriented investor, the valuation multiples are very important to me and a 9.7x EV/EBITDA reflects renewed investor enthusiasm for these types of semiconductor companies in the aftermath of the National Semiconductor deal. It is a bit too rich for my blood at the present.

Intel (NASDAQ:INTC) is the world's leading microprocessor company. It is yielding 3.5% and trading at a mere 4.3x EV/EBITDA ratio. I am relatively bullish on Intel's prospects and recently bought in at $19.88; it is currently trading below that level and I remain optimistic about the company's prospects. It is trading at a discount because the company has fallen behind in the all-important mobile and tablet segments but I believe the race for those high-growth markets is only in its first lap and there is still plenty of time for Intel to play catch up. With its robust balance sheet, strong financial performance, and discounted valuation, I think it looks pretty compelling. I always love a bargain, particularly when a market leader is on sale!

Linear Technology (NASDAQ:LLTC) is a linear integrated circuit company. If you didn't like semiconductors before reading this piece, but you like tech and dividend stocks, maybe you will warm to the segment by the time we are done. So far, 3 of the top 3 companies are in the semiconductor space. LLTC is yielding 2.9% but trading at a 9.4x EV/EBITDA ratio. Like ISIL, its recent performance in 2008-2010 reflects the market's cyclicality. With a 9.4x EV/EBITDA ratio, and the recovery well under way, I have similar valuation reservations about LLTC that I do about ISIL.

Molex (NASDAQ:MOLX) is an electronic components manufacturer that is yielding 2.8% and is trading at a 6.6x EV/EBITDA ratio. Its 2010 revenue and net income are below its 2008 levels but a 6.6x EV/EBITDA ratio is a bit more acceptable for a highly cyclical business than a 9+x multiple. However, I placed my bet on Intel because a 4.3x EV/EBITDA ratio for a more stable, larger-scale, market leader seems like a much better bargain!

KLA-Tencor (NASDAQ:KLAC) is a industrial systems vendor to semiconductor companies--are we noticing a theme here? They are yielding 2.35% and trading at a 7.2x EV/EBITDA ratio, in the middle of the range established by the companies listed above. Their revenue and earnings for the fiscal year ending June 30, 2010 is well below the period ending June 30, 2008. By now, it should be clear that many of these "bargains" are traded at a discount because their results are highly cyclical. Also, the distribution of Ev/EBITDA multiples helps establish the valuation range and, the fact that Intel is such an outlier is one of the reasons I find it so attractive.

Analog Devices (NYSE:ADI) produces analog signal processing circuits. It is yielding 2.35% and trading at a 7.9x EV/EBITDA ratio. Its performance has also reflected the semiconductor market cyclicality.

Microsoft (NASDAQ:MSFT) is the highest ranked software company on our list, with a yield of 2.2% and an EV/EBITDA ratio of 6.3x. I bought MSFT at $15.51 at the height of the financial crisis. The relatively low multiples for MSFT and INTC seem to be reflective of a poor outlook for the PC and server markets given the rise of tablets and mobile devices. However, in my opinion, the market is prematurely counting these companies out of the emerging markets while discounting the legacy PC and server businesses. As many of the mobile and tablet applications require cloud/server based-infrastructure, I am less pessimistic about the long term demand for servers even as mobile devices and tablets are on the rise. It is incomprehensible to me that cloud companies like Salesforce (NYSE:CRM) and Rackspace (NYSE:RAX) are trading at extremely high multiples while the companies that provide the underlying infrastructure and systems level software for these cloud environments are heavily discounted.

Hubbell (HUB-B) is an electrical and electronic products company. It is yielding 2.2% and trading at an EV/EBITDA ratio of just below our 10.0x threshold. This is a growth company at a growth valuation, that happens to pay a dividend. That can be compelling to some investors but is not my personal cup of tea.

Xilinx (NASDAQ:XLNX) is the maker of FPGAs, a specific type of programmable logic device. These chips are very cool and the company is yielding 2.1% and trading at an EV/EBITDA ratio of 8.6x. Looking at the company's recent financial performance, its results have been more consistent than many of the other semiconductor companies during the recent recession. As such, its valuation premium to some of the companies earlier on the list is understandable as its results are more predictable.

TE Connectivity (NYSE:TEL) is an electronic component and undersea cable manufacturer. It is yielding 1.9% and trading at a 7.8x EV/EBITDA ratio. Its performance has been highly cyclical and its valuation multiple seems high given the volatility of its earnings.

Disclosure: I am long MSFT, GOOG.