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Finding stocks that not only promise growth but also provide stable dividends isn’t always easy, especially in the growth-oriented technology sector. But right now, a handful of generous dividend payers stand out as great income investments. Fool.com’s three tech writers share their best dividend ideas of the moment.
Please read below for detailed dividend details. Qualcomm (QCOM -2.43%), universal display (OLED -1.80%)and microchip technology (MCHP -3.04%). Each company offers an attractive combination of technology leadership, long-term business growth potential, and a proven history of dividend growth.
The biggest reason to own this top chip stock is deep cash.
Nicholas Rossolillo (Qualcomm): You’ve probably heard that the semiconductor industry will be in a deep recession starting in the second half of 2022 due to the downturn in consumer electronics products. Qualcomm, a leader in the fundamental technologies that make mobile chips and devices possible, has snatched it up. Revenue for fiscal year 2023 (ending September 2023) fell 19%, including a 24% year-over-year decline in sales in the final month of the accounting period.
Still, Qualcomm continued to generate strong profits by every measure during last year’s recession. Not all top semiconductor companies can boast of that.
Data by YCharts.
In fact, Qualcomm has refilled its coffers thanks to a record increase in chip inventories, some of which is now being sold to customers. Cash and short-term investments increased from $6.4 billion at the end of 2022 to $11.3 billion at the end of September 2023.And in the process, Qualcomm actually increased The company returned a record $3.46 billion in cash to shareholders last year and currently has an annualized dividend yield of 2.1%.
Qualcomm is also releasing excess cash generated from its operations in the form of stock buybacks. Last year, it returned $3 billion in cash through share buybacks, an additional 2% of its current market capitalization.
Free cash flow (resulting from dividends and stock buybacks) in fiscal 2023 totaled nearly $10 billion. And with the smartphone market much healthier than in the past, Qualcomm could have another strong year in 2024 as well, increasing its share buybacks with plenty of room for further dividend payments. Or more. This is one of the main reasons why I have been increasing my position in this top mobile chip stock at the beginning of the new year.
The Dividend Champion You Didn’t Know You Needed
Anders Byland (Universal Display): At one time, talking about Universal Display as a dividend investment seemed a little silly. The display technology specialist’s first dividend was paid in February 2017, at a modest $0.03 per share. At the time, the stock price was around $67, so the forward yield was just 0.2%. That policy is hardly worth as much as the paper it’s written on, right? That means companies developing the patent-protected technology behind organic light-emitting diode (OLED) screens should be high-growth tech stocks, not sleepy dividend targets.
Well, you can actually use it both ways.
Dividend investing requires a firm focus on the years ahead. Universal Display powers its dividend from surprisingly deep free cash flow, with the company promising significant dividend increases over the years. Almost seven years and six dividend increases later, the old, memorable dividend has grown to a respectable $0.35 per quarter, or $1.40 per year.
If you bought it at the current price, around $180, you would have a yield of 0.8%. However, if you were to pick up some Universal Display shares when the dividend begins, your effective annual return on that investment would be 2.1%. The company’s original position in my current portfolio was started almost exactly 12 years ago, and it currently offers a yield of 4.3% on a starting price of $32.41 per share.
As you know, it all comes down to free-flowing cash profits and the company’s commitment to distributing that excess cash to shareholders. The company tends to announce its first dividend near the end of February each year, so we expect the dividend to increase again next month.
OLED dividend data by YCharts
Dividend increases averaged 53% across the six previous uptrends, including a 17% increase in response to the horrendous 2022 market trend. Free cash flow looks a little weak at the moment due to Universal Display’s acquisition of 550 OLED patents in mid-2023.From the German science and materials giant Merck KGaA. The deal reduced Universal Display’s cash flow by $66 million in the second quarter of last year, but cash profits are already on the rise again.
In addition to its top-quality dividend policy, Universal Display is poised to profit in a stable economy as consumers once again start demanding new mobile phones and high-end televisions. Additionally, the company’s target market should expand significantly in the coming years thanks to manufacturing process upgrades, the expanding availability of OLED-based lighting panels, and new categories of electronics getting power-hungry OLED upgrades. is.
These catalysts should lift Universal Display’s stalled price chart in the coming years. Now is the time to buy before your hockey stick moment arrives. Universal Display’s increasingly generous dividends will likely never be this affordable again.
This chip stock is increasing its dividend every quarter
billy duberstein (Microchip): Stocks of AI-related chips and equipment have soared to record highs. But industrial and automotive chips, which had shown resilience throughout 2022 and much of 2023, are now entering a post-pandemic adjustment. So that part of the market may be a good place to look for dividend tech stocks.
Microcontroller and analog chip maker Microchip pre-announced its December-ending quarter, suggesting a 22% decline in revenue, compared to its November outlook of a 15-20% decline. Management believes that the shortage was caused by customers reducing inventories in response to a deteriorating demand environment, combined with extended holiday closures, resulting in a portion of shipments falling from the quarter ending December to the quarter ending March. Management pointed out that this was due to the company’s move to
What’s strange is that the day after that announcement, Microchip’s stock actually went up. Up. When semiconductor stocks don’t go down or actually go up despite bad news, it usually means investors think they’re nearing the bottom of the current cycle.
Despite the economic cycles that all semiconductor companies experience, Microchip has quickly become a profitable blue-chip company since reaching its leverage target several years ago. This milestone was achieved after five years of repaying debt associated with the major acquisition of Microsemi in 2018. But since hitting its leverage goal, the company has turned to steadily increasing share buybacks and dividends not only annually but also quarterly.
The plan is to increase cash returns to shareholders as a percentage of free cash flow by 500 basis points each quarter. In the most recent quarter, Microchip returned $562 million to shareholders in dividends and stock buybacks, representing 77.5% of its free cash flow in the prior quarter. These cash returns will increase by 5 percent each quarter until they reach 100 percent by March 2025.
This means investors should expect Microchip’s current dividend yield of 1.92% to grow consistently. After all, Microchip should become a low-double-digit conglomerate as automotive and industrial equipment utilizes more chip content year after year, even though the automotive and industrial sectors are currently on pause. .
Meanwhile, Microchip’s stock is trading at a very reasonable 20 times forward earnings estimates, which should indicate the bottom of the economy. That makes the stock a smart pick for dividend growth investors in early 2024.
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