14 Tech Companies With 1+% Dividend Yields, Low Debt, And Attractive Valuations

by: Lenny Grover

Using the Screener.co stock screener, and configuring the Markets to only include U.S. traded companies (NASDAQ, American Stock Exchange, New York Stock Exchange, and Over the Counter), we are able to construct a screen for dividend-paying technology companies that meet the following criteria:

Current Dividend Yield-Common Stock Primary Issue-LTM
Current year dividend per share estimate
Current year consensus EPS estimate
Total Debt(I)

In addition to the conditions mentioned in the article title, we also require that forward EPS > DPS. When looking for operating companies that pay dividends, I tend to avoid firms that have dividends greater than their earnings. Another way to look at this would be to require DPS < operating cash flow per share; in both cases, the objective is to exclude companies whose dividend payments may not be sustainable. This is, admittedly, a crude and conservative screen, but it still produces 14 results as of 4/1/2011, all of which have market caps greater than $1B and are worthy of further analysis:

Company Name
Computer Sciences Corporation
Lender Processing Services, Inc.
Intel Corporation
Harris Corporation
Microsoft Corporation
AVX Corporation
Nokia Corporation (ADR)
Texas Instruments Incorporated
Kyocera Corporation (ADR)
STMicroelectronics N.V. (ADR)
Jabil Circuit, Inc.
Canon Inc. (ADR)
Molex Incorporated
Lenovo Group Limited (ADR)

Computer Sciences Corporation (CSC) is an IT outsourcing company that serves government and large businesses. While the government business is likely to face pressure from cost-cutting, enterprise IT spending has been on the rise coming out of the recession. CSC is one of only three companies in the list that has negative FYoFY revenue growth (-3.7%). Its EV / EBITDA ratio is only 3.9x. The company had over $1.1B in depreciation expenses last year, so its operating cash flow is stronger than its net income would suggest. In fact, its TTM P/CF ratio is also only 3.9x. There was a more in-depth analysis of CSC in a Seeking Alpha article published on 3/28/2011 that cites it as a compelling value play. It is currently yielding ~1.7% according to Yahoo Finance.

Lender Processing Services (NYSE:LPS) is a technology outsourcing company that specializes in the mortgage lending industry. I am, personally, very bearish on the domestic housing market and am avoiding any direct or indirect exposure to the sector. It is also worth mentioning that interest rates remain very low relative to historical averages; that has prompted many homeowners to refinance their mortgages to lock in lower rates. As the demand for refinancing continues to make its way through the system, that source of mortgage applications will also likely dwindle over time. Given the concerning macro factors, it is not surprising that the company has an EV/EBITDA ratio of 6.3x or a TTM P/CF ratio of 7.1x despite reporting 3.6% YoY revenue growth. Also concerning is its highly negative Net Tangible Assets (-$909M). While it meets the screen's criteria for debt serviceability, I generally like to see more robust balance sheets in value and income picks. LPS is currently yielding ~1.2% according to Yahoo Finance.

Intel (NASDAQ:INTC) is the world's leading microprocessor company. It has come up on a number of our value screens, with YoY revenue growth of 24%, an EV/EBITDA ratio of 4.5x, and a TTM P/CF ratio of 6.9x. The company has net tangible assets of $44.9B and, despite the cyclicality of the microprocessor market, was able to produce over $10B in operating cash flow in each of 2008 and 2009. It seems to be trading at a discount because it is not positioned as well in the mobile and tablet markets as it is in the PC and server markets. Given that mobile and tablet are the high-growth segments, Intel's valuation is discounted heavily relative to other microprocessor companies, like ARMH, that target the mobile and tablet segments. I would not count Intel completely out of the mobile and tablet race yet despite its need to play catch up, and I think its attractive valuation and high yield justify a closer look at the business. INTC is currently yielding a whopping ~3.6% according to Yahoo Finance.

Harris Corporation (NYSE:HRS) is a communications company that serves the government (public safety, military / defense / homeland security, intelligence, aviation, etc.) and commercial markets. Given the significant budget pressures facing regional and national governments throughout the developed world, I am relatively bearish on companies that derive a substantial portion of their revenue from government contracting. There was a more in-depth, positive, Seeking Alpha article published on 3/24/2011, but I am a little more cautious. The company reported 4% YoY revenue growth and trades at an EV/EBITDA ratio of 6.3x and a TTM P/CF ratio of 7.9x. It is yielding 2.1% according to Yahoo Finance.

Microsoft (NASDAQ:MSFT) is...well, Microsoft! With a 2.5% yield, according to Yahoo Finance, an EV/EBITDA ratio of 6.3x, and a TTM P/CF ratio of 9.2x, its valuation and yield look appealing. MSFT also reported a YoY revenue growth rate of 6.9%, not too shabby. Like Intel, there is fear that it will be left behind by the rise of mobile and tablet devices. I bought some MSFT at $15.51 during the height of the financial crisis and continue to hold it; it provides a nice yield and had an incredibly attractive risk-reward trade-off when it was valued at less than a 5x EV/EBITDA ratio. Now, its valuation is still somewhat attractive but the company has fallen further behind in the high-growth markets likely to represent the next generation of personal computing. I continue to watch the company but am less bullish than I was at the time of original purchase.

AVX Corporation (NYSE:AVX) is an electrical components manufacturer. With a yield of ~1.5%, according to Yahoo Finance, and an EV/EBITDA ratio of 5.1x and a TTM P/CF ratio of 9.1x, the company appears to be inexpensive. However, it is the second of the three companies on the list with a negative YoY revenue growth rate (-6%). In fact, its revenue declined between 2008 and 2009 as well. As such, I am inclined to pass on this one.

Nokia (NYSE:NOK) is still one of the leading manufacturers of smartphones globally despite continuing to lose market share to Apple / iOS and Android. It is trading at an EV/EBITDA of 4.4x and an TTM P/CF ratio of 6.8x. In addition, the dividend yield is ~5.5%. Given the valuation metrics, the company is probably worthy of further research but it is essentially a turnaround play and needs to be examined in that light. If it cannot reverse the momentum of Google and Apple in its core European and Asian markets, and build new smartphones that customers want, then the company's long-term outlook is not positive.

Texas Instruments (NYSE:TXN) is a semiconductor manufacturer that is trading at an EV/EBITDA ratio of 6.9x and a TTM P/CF ratio of 9.8x. According to Yahoo Finance, its current yield is ~1.5%. The company reported a whopping 34% YoY revenue growth rate and its share price is up from the ~$24/share levels in September of last year to ~$34/share today. Even keeping in mind that the semiconductor market is highly cyclical, TXN's top-line recovery from 2009 to 2010 is impressive. Nevertheless, I think the company and market's cyclicality is too severe to justify putting the company on my watchlist.

Kyocera (NYSE:KYO) and Canon (NYSE:CAJ) are both Japanese companies that saw their share prices decline recently in the wake of the Tsunami and nuclear crisis in Japan. While Kyocera has mostly recovered its value, Canon is once again closing in its levels from mid-March. Kyocera is yielding ~2% according to Google Finance while Canon is yielding 2.7% according to Yahoo Finance. Kyocera has an EV/EBITDA ratio of 5.7x and Canon's is 5.8x. Kyocera's TTM P/CF ratio is 8.3x while Canon's is 9.1x. Kyocera is the third and final company on the list with negative YoY revenue growth (-4.9%) while Canon reported YoY growth of 15.5%. While there were reports in mid-March of a brief disruption to one or more of Kyocera's production facilities, I could not find any similar reports regarding Canon (if any commenters have more information on the effect of the natural disaster on these two Japanese companies, it would be appreciated). In the absence of that information, it is difficult to make a play here.

STMicroelectronics (NYSE:STM) is another semiconductor company; it is trading at an EV/EBITDA ratio of 6.3x and a TTM P/CF ratio of 7.1x and reported 21.5% YoY revenue growth. According to Yahoo Finance, it is currently yielding ~1.9%, according to Yahoo Finance. If I were an income-focused investor, I would likely be afraid of the cyclicality of the semiconductor market. This impacts STM just as it would TXN, the other semiconductor company on the list that had a high YoY growth rate coming out of the recession. In fact, STM was net-income unprofitable in both 2008 and 2009 (though it had positive operating cash-flow in both years). Alleviating some of this concern for STM is its strong balance sheet, with a net tangible asset value of over $5.8B relative to a market cap of ~$11B, and the fact that it was able to generate enough operating cash flow to pay its dividend even in the years it was unprofitable on a net-income basis. Still, the cyclicality of the semiconductor market is off-putting.

Jabil Circuit (NYSE:JBL) is an electronics manufacturing company with an EV/EBITDA ratio of 6.4x and a TTM P/CF ratio of 7.8x. It reported YoY revenue growth of almost 15% YoY. However, it accumulated substantial inventories and payables in the fiscal year ending August 31, 2010. In its most recent quarterly report (period ending November 30th, 2010), it had negative operating cash flow and continued to accumulate inventory. Despite yielding ~1.5% according to Yahoo Finance, I am a bit turned off by the inventory accumulation and recent negative operating cash flow. While some part or all of that may be attributable to the working capital requirements for growth, I am taking a wait-and-see attitude.

Molex Incorporated (NASDAQ:MOLX) is an electronics components manufacturer that is trading at an EV/EBITDA ratio of 6.7x and a TTM P/CF ratio of 8.6x. It reported YoY revenue growth of 16.5% and is yielding 2.8% according to Yahoo Finance. Given the cyclicality of the EMS market, it is not unsurprising that the company reported a net loss for 2009, during the recession. However, it actually reported positive operating cash flow and paid a dividend in that year, as well. It also has a strong balance sheet, with a net tangible asset value of over $2B. Nevertheless, the cyclicality of the market is concerning and I am not adding this company to my watchlist.
Lenovo Group Limited (OTCPK:LNVGY) is a Chinese laptop manufacturer. It is trading at an EV/EBITDA ratio of 5.1x and a TTM P/CF ratio of 13.6x. It reported a YoY revenue growth rate of 11.4%. According to Google Finance, the company is yielding ~1.6%. While Lenovo is an interesting business, the stock is an unsponsored Over-The-Counter traded ADR. I tried to find information on the ADR fee associated with these shares but was unable to. If somebody could find that information and post it to the comments, that would be appreciated. In the absence of that information, it is difficult to evaluate this investment opportunity.

Disclosure: I am long MSFT.

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