Technology is one of the most promising sectors. It always changes and therefore offers new opportunities to investors. That's why this is one of the best sectors for long-term investors. Stocks of this sector may provide some quite impressive returns at times. During the late 90s, fortunes were made and lost in this sector. Since the collapse of the tech bubble, the survivors kept boosting their profits, but their market returns were mediocre. Still, there are good news for income-oriented investors. Several stocks in this sector share their profits with shareholders by means of fat dividend checks. But not all tech companies are that much eager to pay dividends. Here is a brief analysis of 5 technology stocks. All of them has hoards of cash, but only 4 of them pay nifty dividends:
- Yield: 3.68%
- YTD return: 4.77%
2011 was a tough year for the company. A very though one indeed. Nokia's earnings reports confirmed that the company was losing its market share at an alarming rate. The company's market cap was slashed by 50% in the last year.
However, Nokia shows you the money in the most generous form. Although the dividends were slashed from $0.48 to $0.18, that still amounts to a yield of 3.7%. The company does not have any significant debt issues, so bankruptcy rumors are unfounded. Nokia is going through significant structural changes. It is shrinking its labor force in thousands. I was a big fan of Nokia phones, and after using Apple's (AAPL) iPhone for the last 2 years, I am planning to switch back to Nokia, once I find a suitable Windows-based smart phone. Nokia's batteries have unmatched life-time, and that is one specialty that other smart phone manufacturers could not compete with Nokia. Nokia's primary deficit was its unnecessarily complex software. And its strategic alliance with Microsoft (MSFT) can be a huge plus for the company by solving this issue.
From a technical point, $5 looks like a strong support for the stock. The stock looks like ready to bounce back to its previous highs. Northland Securities has a target price of $10. My target price is also around this level. If things work well in Europe, Nokia can double its market cap in 2012.
- Yield: 3.14%
- YTD Return: 10.27%
Intel, the glorious winner of the microchip battle, was able to boost its earnings at an annualized rate of 22% in the last 5 years. However, the stock's market performance was well-below the company's growth rate. In fact, it was bouncing $16 to $22 range for the last 8 years. If it was not for the nifty dividends, shareholders would have experienced significant losses during that period.
Recently, Intel broke its trading range. As of January 31st, it was trading around $26. The last time, Intel was trading at this price was around 2004. Intel has been a nifty dividend payer, boosting its dividends by almost 50% in the last 5 years. I expect the dividends to keep growing as the company grows. That is why I think, it is a dividend pick for the next 5 years.
Applied Materials (AMAT)
- Yield: 2.65%
- YTD return: 12.61%
AMAT is among my favorite dividend stock picks. I think the company has the potential to double in 2012. Founded in 1967, Santa Clara-headquartered AMAT is one of the leading players in the semiconductor and solar sectors. The company is doing fine and was able to double its earnings this year. However, the stock lost 22% in 2011, primarily due to the over-supply concerns in the solar industry.
The company has been a dividend riser for the last 5 years. Its current yield of 2.65% is supported by a relatively low payout ratio of 21%. Given the company's cash rich balance sheet, I think the dividends have plenty of room for growth. AMAT is also trading at an attractive trailing P/E ratio of 8.32. January has been a good month for the stock, where it returned over 10%. However, the stock is still trading well below its 52-week high. Therefore, I rate AMAT as a buy.
Seagate Technologies (STX)
- Yield: 4.8%
- YTD return: 27.4%
Seagate is among the leading data storage device producers in the world. I like their products. The company offers same or even better quality hard disk drives that is available for cheaper prices. Apparently, they have a cost advantage over other producers. Seagate's dividends are kind of erratic. Whenever things work fine, they share the profits with shareholders. Things worked well for the company in 2011, where it reported a net profit of $500 million. Approximately one-third of the profits is shared by shareholders. Current yield of 4.8% is one of the best among technology stocks.
The stock is in a strong momentum, and has returned more than 25% in January. While current price is below my fair-value estimate, I would rather wait for a pull back. Note that analysts are pretty bullish on the company, expecting the forward P/E ratio to be as low as 4.6.
Cisco (CSCO) - Does Not Show You the Money
- Yield: 1.22%
- YTD return: 8.55%
Cisco is the only company among this list that does not show the money to its shareholders. The company is sitting on cash and equivalents of over $8 per share. That is almost $44 billion of liquid assets. Compared to this gigantic cash hoard, it offers a tiny, mini, paltry dividend of $0.24 per share. That is a quarterly dividend of $0.06.
Even Cisco's long time shareholder Ralph Nader, who owns 18000 shares, is pretty frustrated with the management's reluctance to offer higher dividends. Instead of paying dividends, the management has opted for stock buybacks, which has not created much value so far for the long term shareholders.
Cisco is in a strong momentum since the last 6 months. It also returned 8.55% in January. At a price of $19.6, it is trading close to my fair value estimate of $22. I think, the momentum might keep for a while, but as long as the management does not offer nifty dividends, I will keep Cisco in my stay away zone.