Investors continue their quest for yield as U.S. Treasury rates hover around 2% for 10-year T-Notes, and there remain precious few options for income-oriented portfolios.
Big yield can be found in the typical corners — MLPs, junk bonds and preferred stock, to name a few. But one spot that some investors may want to look for big dividends is the tech sector.
Believe it or not, some big payment increases and some relatively big declines have resulted in an interesting landscape for dividend-paying technology companies. There is clearly risk here, based on the fact that some stocks continue to face headwinds and others have a pretty darn high payout ratio.
There’s an old adage that the easiest way to double your dividend yield is to get your share price halved. But if you’re willing to get a little aggressive with your income portfolio, then here are three tech stocks with big dividends that may be worth a look:
Disk drive manufacturer Seagate Technology (NASDAQ:STX) may not seem like a runaway winner in this age of mobile devices and declining PC sales. However the stock just set an all-time high and is up an amazing 670% from the bear market lows.
Seagate has certainly had its share of troubles — massive losses and restructuring in fiscal 2009, supply chain disruption in 2011 due to the Pacific tsunami and general industry headwinds thanks to the mobile revolution. But seven straight quarters of year-over-year revenue increases show the company has bounced back nicely lately.
While the 12-cent quarterly dividend was cancelled in 2009, it was reinstated in 2011 and is now up to 38 cents a quarter for a whopping 4.7% yield. And best of all this payout is a very sustainable 30% of forecasts for fiscal 2013 earnings.
Of course, earnings and revenue momentum is waning so there’s a risk shares could take a tumble. But based on FY2013 estimates of $4.94 Seagate still has a reasonable PE of 6.5 or so even after tripling from 2011 lows.
Another stock hit by negativity over the post-PC age is Intel (NASDAQ:INTC). But unlike Seagate, INTC has had a rough go in the near-term — losing almost 20% in the last year.
However, there are reasons to think that the stock has at least stabilized. Remember, Intel is the largest semiconductor manufacturer on the planet, and its market share is bigger than No. 2 Samsung (PINK:SSNLF) and No. 3 Texas Instruments (NASDAQ:TXN) combined. As long as there are chips, there will be plenty of business for Intel.
The concern, however, is that Intel’s home-grown chips aren’t as in demand as they once were because it remains behind in the mobile game. Intel has tried to counter that with a new mobile chip line, Clover Train+. The company has a big research budget and deep pockets to keep at this market, too.
Intel has a yield of about 4.2% with its 22.5-cent quarterly dividend very sustainable at 46% of the $1.93 estimate in fiscal 2013 earnings. Dividends also have been paid since 1992 and the payment is up more than 10-fold in the last decade when you consider a nominal 2-cent quarterly payout back in 2003.
There remain big risks in a post-PC age, especially if Intel can’t get its own mobile chips to take off and resorts to producing third-party chips — perhaps from firms like ARM Holdings (NASDAQ:ARMH) — at much lower margins, which some analysts fear will happen in the next few years. However, the forward P/E remains around 10 and profits and sales are at least growing incrementally over the current fiscal year.
SAIC (NYSE:SAI) isn’t as common a name among consumers, but this enterprise technology company provides a range of services including cybersecurity, networking infrastructure, software development and secure communications.
We’ll get right to the obvious: Since 40% of fiscal 2012 revenue came from its “defense solutions” segment, SAIC has been hit hard by the recent focus on spending cuts and particularly Department of Defense rollbacks. The company has declined about 30% from 2011 highs as a result.
After swinging to a tiny loss in fiscal 2012 (which, for the record, was most of calendar year 2011 sine it ended on Jan. 31, 2012) the company has seen its profits bounce back even though revenue continues to be flat. There is a serious risk that business will continue to suffer amid Washington’s cutbacks, and as private businesses are unwilling to engage in big capital expenditures.
But SAIC’s board apparently recognized this and rather than be left for dead, they instituted a 12-cent quarterly dividend last year once the firm retained a profit cushion. The payout is good for a roughly 4% annual yield and is very sustainable at less than a third of the $1.49 projected for FY2013 EPS.
- Another way to find yield? Preferred stock ETFs. (The Slant)
- On INTC: Intel’s CEO change could determine where it goes from here. (Dividend.com)
- Also on INTC: I did own the stock personally, but punched out a little while ago. Still I own it on paper as part of the InvestorPlace.com “Best Stocks for 2013” competition. (InvestorPlace.com)
- On SAIC: JP Morgan Chase (NYSE:JPM) just cut SAI to neutral with a $12 target. That’s right about where shares trade currently. (Jags Report)
- Contrarian view on STX: Dan Moskowitz wonders if Seagate is heading south. (Wall Street Cheat Sheet)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.