A decade ago if I would have told you that I would be writing an article today about some of the high dividend yields available from some well known technology companies, you probably would have thought I needed to spend some time on a psychologist’s couch. Times have certainly changed. Today I highlight three large capitalization tech stocks with low valuations as well as good prospects for growing earnings and dividends over the next few years and already providing a solid dividend yield currently.
Taiwan Semiconductor Corporation (TSM): Taiwan Semiconductor Manufacturing Company Limited engages in the computer-aided designing, manufacturing, packaging, testing, and selling of integrated circuits and other semiconductor devices; and manufacturing masks. It offers a range of wafer fabrication processes, including processes to manufacture complementary metal oxide silicon (CMOS) logic, mixed-signal, radio frequency, embedded memory, BiCMOS mixed-signal, and other semiconductors. The company’s semiconductor products include logic semiconductors that process digital data to control the operation of electronic systems, as well as standard logic devices that include microprocessors, microcontrollers, digital signal processors, graphic chips, and chip sets; and mixed-signal/RF semiconductors, which combine analog and digital devices on a single semiconductor to process analog and digital data for use in hard disk drives, wireless communications equipment, and network communications equipment.
Valuation and Price Targets – Taiwan Semi sells for less 14 times this year’s and just over 12 times 2012’s consensus EPS. It has a pristine balance with almost $1 per share in net cash and is selling in the bottom quarter of its five year valuation range based on P/E, P/S and P/CF. It has a solid dividend yield of 2.7% and it has raised its dividend an average of a little over 10% a year over the last five years. The CEO just upped the company’s estimate of worldwide semiconductor growth to 5% from 4% previously, and stated TSM should grow revenues 20% this year. It is also projected to grow revenues in double digits in 2012 as well, yet it has a PEG of less than 1. TSM sells for $13.72 a share. Price targets are $18 at The Street and $15 at S&P.
Intel (INTC): Intel Corporation engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds. The company also provides system on chip products that integrate its core processing functionalities with other system components, such as graphics, audio, and video, onto a single chip. In addition, it offers chipset products that send data between the microprocessor and input, display, and storage devices, including keyboard, mouse, monitor, hard drive, and CD, DVD, or Blu-ray drives; motherboards designed for desktop, server, and workstation platforms, and that has connectors for attaching devices to the bus; and wired and wireless connectivity products consisting of network adapters and embedded wireless cards used to translate and transmit data across networks.
Valuation and Price Targets – Intel is selling at less than 10 times this year’s earnings and a little over 9 times next year’s consensus estimate. Shares yield 3.3% and Intel has grown its dividend an average of 12.5% over the last five years. Earnings have improved an average of 14% over that same time period. At this rate, unless the stock price moves up, Intel will soon have 4% yield. It has beat earnings estimates handily over the past four quarters and consensus EPS estimates have moved up smartly over the past three months. It also is selling at the bottom of its five year valuation range based on P/E, P/B and P/CF. Intel is selling at $21.82. Price targets are $30 at Longbow Research, $28 at Credit Suisse and $26 at S&P.
Microsoft (MSFT): Microsoft Corporation develops, manufactures, licenses, and supports a range of software products and services for various computing devices worldwide. The company’s Windows and Windows Live Division segment offers Windows operating system, Windows Live, and Internet Explorer. It offers Windows operating system, which include Windows 7, Windows Vista, and Windows XP Home, as well as Windows Live suite of applications and Web services. Microsoft’s Server and Tools segment provides Windows Server operating systems, Windows Azure, Microsoft SQL Server, SQL Azure, Visual Studio, Silverlight, System Center products, Biz Talk server, Microsoft consulting services, and product support services. This segment also provides enterprise consulting and product support services; and training and certification to developers and information technology professionals, as well as builds standalone and software development lifecycle tools for software architects, developers, testers, and project managers.
Valuation and Price Targets – Microsoft sells for less than 9.5 times projected earnings of $2.58 and 8.5 times 2012 consensus EPS. It also has approximately $3 a share in net cash. It has significantly exceeded earnings estimates for the last four quarters. It sells at the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF. MSFT yields 2.7% and it has raised its dividends an average of 11.5% over the last five years. It has grown earnings an average of 11% a year over the same time frame. Given its consistent cash flow and the amount of cash on its balance sheet, growth in its dividend should continue to grow at the same rate or accelerate as MSFT has less than 25% payout ratio on this year’s earnings. Microsoft stock sells for $23.94 a share. Price targets are at $36 at Credit Suisse and $35 at S&P as well as Barclays. Microsoft is one of my favorite long term buys.
Disclosure: I am long INTC, MSFT.