From healthcare and food production to consumerism and commerce, everything has been made faster and cheaper through high-tech innovations. From this perspective, the technology sector is expected to be a long term demand winner in the world economy. Among the other sectors, this one has shown itself to be incredibly resilient despite the Japan earthquake. In April 2011, semiconductor sales increased to $24.7 billion, a 3.9% increase from April 2010, sales of $23.7.
The last five-year EPS growth rate of the technology sector was 16.87%. This value of EPS growth rate is the highest in US stock market. Analysts expect the EPS growth for the next five years to be 12.72%. Given these high-growth expectations, I expect the dividends to grow at least at the same rate as EPS. While dividends are usually attributed to large-cap companies with low-growth potential, some mid-cap companies offer nifty dividends, as well. Here, is a brief analysis of 7 mid-cap technology stocks paying substantial dividends, and priced within the fair value range. (Data from Finviz, current as of the June 6 close.)
Garmin LTD (GRMN) operates as a holding company and through its subsidiaries, designs, develops, manufactures and markets global positioning system enabled products and other navigation, communication and information products worldwide. The company was founded in 2000 and is based in Camana Bay, Cayman Island. Garmin is planning to acquire Navigon, a German maker of navigation devices, in a deal worth around $72 million.
As of June 6, Garmin's market cap was $6.46 billion. The P/E ratio of the company is 10.31, and the forward P/E ratio is 13.70. Dividend yield of the Garmin is 4.51% and the company will pay $0.80 dividends to each share in the next quarter. Garmin has a nifty current ratio of 4.67. In the last 5 years, annualized EPS growth rate has been 15.67%. The company’s net profit margin is 23.23%.
Analysts estimate an EPS growth of 8.33% for the next five years. With an O-Metrix score of 6, I think Garmin will be an outperformer. However, given the extreme competition from Google (GOGL) Maps (offered for free) on iPhone, the company might need to conduct radical changes in its products, as well as marketing strategy.
Maxim Integrated Products (MXIM) was founded in 1983, and is based in Sunnyvale, California. The company manufactures a range of linear and mixed-signal integrated circuits and provides high-frequency process technologies capabilities for use in custom designs.
Market cap as of June 6 was $7.58 billion. The P/E ratio of the Maxim is 18.47, and forward P/E ratio is 13.95. The company has a nifty yield of 3.27%, and the company significantly increased its dividends in the last years. In 2002, the company paid $0.02 dividends, while it will pay $0.21 dividends in the next quarter to each share. Furthermore, Maxim has a good current ratio of 4.29.
Analysts estimate an EPS growth of 15.58% for the next 5 years. With an O-Metrix score of 5.8, I think Maxim will also beat the market.
Microchip Technology Inc. (MCHP), founded in 1989 and based in Chandler, Arizona, manufactures and sells semiconductor products for various embedded control applications. The company distributes its product in the Americas, Europe and Asia.
Market cap as of June 6 was $7.14 billion. The P/E ratio of the company is 17.05, and expected P/E ratio is 14.37 for next fiscal year. Dividend yield is 3.69%, and the company will pay $0.346 in the next quarter. Microchip Technology has the highest net profit margin of companies on this list with 28.86% and highest current ratio of 5.22. In a recent news release (pdf), Steve Shanghi, President and CEO of Microchip Technology, stated that “the cash flow from Microchip’s business continues to be strong, and we ended fiscal 2011, with $1.7 billion in cash and investments on the balance sheet.”
According to a research by Bloomberg, Microchip technology has the highest dividend health score in the S&P 500 (SPY) with 56 points. Analysts estimate an EPS growth of 12.90%. With a score of 5, I think Microchip will perform more or less in line with S&P 500.
Molex Incorporated (MOLX): Molex Incorporated was founded in 1938 and is based in Lisle, Illinois. The company manufactures more than 100,000 electronic, electrical, and fiber-optic wire connections, switches, and integrated products.
As of June 6, Molex had a market cap of $4.52 billion. The P/E ratio of the MOLX is 17.26, and forward P/E ratio is 12.55 for the next year. Dividend yield of Molex is 3.11%, and it will pay $0.2 dividends to each share in the next quarter. According to analysts, the average target price is $29.80, implying 16% upside potential. According to the first quarter financial results of 2011, Molex’s revenue was $874 million, which was down 3% sequentially, and up 15.6% year to year. Although, the company lost some money after the Japan earthquake, profits are expected to recover by the second quarter of 2011. Analysts estimate an EPS growth of 7% for the next 5 years. With an O-Metrix score of 3.5, I think Molex will be a laggard. The shares are up by 50% since September, and they double topped, could not pass the $28 resistance, and now the momentum has shifted downward.
Pitney Bowes Inc. (PBI), is a Stamford, Connecticut-based company. It provides mail processing equipment and integrated mail solutions worldwide.
As of June 6, PBI has a market cap of $4.72 billion. Ttm (trailing twelve month) sales revenue is $5.40 billion. As of June 6, P/E ratio of the company is 15.05, and forward P/E ratio falls 10.07 for the next year. Pitney Bowes has the best dividend yield of 6.37%. The company will pay $0.37 in the next quarter of 2011. According to a recent announcement, Pitney Bowes will collaborate with Magento in order to offer international e-commerce solution. The company believes that the collaboration will deliver solid performance in the long term, and achieve solid profitability based on its strong range of product.
While PBI has a top-notch dividend yield, the future expectations on EPS growth are negative. Similar to Molex, the shares were up by 50% since September, and they double topped, could not pass the $25 resistance, and now the momentum has shifted downward.
Seagate Technology PLC (STX), is the leading provider of storage devices with the industry’s broadest product offering. It was founded in 1979, and its headquarters is in Dublin, Ireland. The company became the first hard drive manufacturer to ship 1 billion hard drives.
As of June 6, STX had a market cap of $6.70 billion. The P/E ratio of 9.85 is among the lowest among mid-cap companies. The forward P/E ratio is 8.03 for the next fiscal year. Dividend yield of the company is 4.62%, and it announced $0.18 dividend payment to each share for the next quarter. As of June 6, the shares were trading at $15.57. However, analysts have a target price of $20.5, implying 31.6% upward potential. Based on a 5-year EPS growth estimate of 5.62%, Seagate has an O-Metrix score of 5.6. However, given the past 5-year EPS growth of 17.39%, I think 10% EPS growth is more reasonable. Thus, the O-Metrix score is in the 8-9 range. I expect Seagate to beat the market. The shares are under contemporary pressure due to Europe's internal issues. However, Seagate is a global company that will benefit from economic recovery.
STMicroelectronics NV (STM) is an independent semiconductor company. The company designs, manufactures, develops and markets a range of semiconductor integrated circuits and discrete devices. Moreover, the company recently introduced a member of high-quality power transistors for use in electronic subsystems on board satellites and launchers.
As of June 6, STM had a market cap $9.69 billion. The P/E ratio is 10.33, and forward P/E ratio is 10.13. Dividend yield of STM is 3.76%, and it will pay $0.10 dividends per share. The shareholders enjoyed an annualized EPS growth rate of 25.76% for last 5 years. Analysts estimate an EPS growth of 13.8% for the next 5 years. I think the stock is dirt cheap. With an O-Metrix score of 9 out of 10, STM will be a star performer in the next 5 years.