3 Undervalued Tech Stocks That Offer List-Topping Yields

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 |  Includes: CSCO, INTC, STX
by: Trade In Mexico

The boom in dividend stocks is likely to continue, as the weak global economy is poised to keep rates at low levels. The interest in dividends has taken stocks like AT&T (NYSE:T), from being considered a boring investment, to being a great dividend stock, and even offering investors capital gains as the shares have risen from 52-week lows of $27.29 to about $37.

While most investors look for dividends in utilities and telecoms, it makes sense to search the tech sector for opportunities for a number of reasons. First of all, the tech sector has above-average growth potential. Many tech companies have cash-rich balance sheets which lowers risks for investors. Strong balance sheets can also mean dividend payments have a lower risk of being cut and this strength could even allow for dividend growth in the future. A recent Barron's article lists the top-yielding dividend stocks in the tech sector. Here is a closer look at some top-yielding dividend stocks that investors should consider now for income and capital gains potential:

Seagate Technology (NASDAQ:STX) shares yield nearly 4%, and that puts it at number 11 out of the top 30 tech dividend-paying stocks. This company makes a range of technology products including internal hard drives, external hard drives, digital media players, back-up software, and data recovery other services. Seagate appears to be significantly undervalued. It trades for just about 5 times earnings, while the average stock in the S&P 500 index trades for around 13 times earnings. Seagate has a strong balance sheet with about $2.12 billion in cash, and around $2.86 billion in debt. This company is using some of the cash to buyback shares on the open market. The company recently reported net income of $1 billion and diluted earnings per share of $2.37, for the quarter ended June 29, 2012. During the first half of 2012, Seagate completed the buyback of about 88 million ordinary shares, which represents around 19% of the company's market capitalization. The stock looks cheap and investors are paid a generous dividend while waiting for a higher share price.

Key Data Points For Seagate From Yahoo Finance:
Current Share Price: $35.08
52-Week Range: $9.05 to $35.71
Dividend: $1.28 per share which yields 3.9%
2013 (fiscal-year) Earnings Estimate: $7.48 per share
2014 (fiscal-year) Earnings Estimate: $6.98 per share
P/E Ratio: about 5 times earnings

Intel Corporation (NASDAQ:INTC) shares yield about 3.4%, and that puts it at number 14 on the list, out of the top 30 tech dividend-paying stocks. Intel is a leading maker of computer chips and it continues to dominate in many areas. The company has a very strong balance sheet with about $13.65 billion in cash, and just around $7.23 billion in debt. Intel recently reported solid financial results with second quarter revenues of $13.5 billion, operating income of $3.8 billion, and net income of $2.8 billion, or 54 cents per share. Intel management seems to think the stock is undervalued. It also has a significant buyback program and it used about $1.1 billion to repurchase stock, during this quarter. This company has a history of dividend increases. For example, in 2007, it paid a quarterly dividend of 11.25 cents per share, but thanks to regular increases, the quarterly dividend has doubled to 22.5 cents per share. Intel's multi-decade dominance as a chip-maker, strong balance sheet, and dividend growth, make it a top choice for income investors to consider now.

Key Data Points For Intel From Yahoo Finance:
Current Share Price: $26.23
52-Week Range: $19.16 to $29.27
Dividend: 90 cents which yields 3.4%
2012 Earnings Estimate: $2.39 per share
2013 Earnings Estimate: $2.55 per share
P/E Ratio: about 11 times earnings

Cisco Systems, Inc. (NASDAQ:CSCO) shares just made it onto the top-yield list after the company announced a 75% increase in the dividend payout. The shares now yield nearly 3%, and that puts it at number 22 out of the top 30 tech dividend-paying stocks. This networking giant has a fortress-like balance sheet with about $48.72 billion in cash and just around $16.33 billion in debt. Cisco announced the big dividend hike and solid financial results just recently. For the quarter ending on July 28, 2012, Cisco reported net income of $1.9 billion GAAP (which is an increase of 56% year over year), or 36 cents per share. On a non-GAAP basis, net income was $2.5 billion, or 47 cents per share. During this quarter, Cisco repurchased 108 million shares of common stock, at an average price of $16.62 per share, for total value of around $1.8 billion. The remaining authorized amount for stock repurchases under the existing buyback program is approximately $5.9 billion. The strong balance sheet, rising dividend and valuation at just about 9 times earnings, makes Cisco a solid buy for income investors.

Key Data Points For Cisco From Yahoo Finance:
Current Share Price: $18.94
52-Week Range: $14.93 to $21.30
Dividend: 32 cents which yields 2%
2012 Earnings Estimate: $1.93 per share
2013 Earnings Estimate: $2.09 per share
P/E Ratio: about 9 times earnings

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Disclosure: I am long CSCO.