I love being right.
I was right about tech stocks – as a group and on dozens if not hundreds of individual plays as well.
I was right about legal cannabis stocks.
And I’m right on cryptocurrencies and blockchain technology.
But sometimes I love being wrong, too.
Let me explain…
And I was wrong about that.
Fact is, in “Old Silicon Valley,” dividends were held suspect – shunned even.
That’s because fast-growing firms need to send most of their cash flow back into R&D and finding new growth opportunities.
So I felt that when a tech leader started to pay dividends it was a sign that senior management had decided to play it safe rather than advance more breakthrough products.
But all that is quickly changing in the “New Silicon Valley.” That’s because high-tech firms are becoming some of the best dividend stocks to own while still offering lots of new growth.
Today I’m going to show you why that’s true.
Then after that I’ll reveal five ways you can play this new trend in order to pile up both share-price gains and dividend cash…
Catch This Wave Before It Breaks
These days, tech leaders are awash in cash. Just the profits they are holding overseas – much of which is being repatriated as we speak due to the Trump tax cuts – amounts to several hundred billion dollars.
Many of these firms already have profit margins well over 20%, meaning that for every $1 in sales 20 cents goes right to the bottom line.
Couple that with the recent $1.5 trillion tax cuts for corporations and you have a sector that will continue to see rising cash flows. And the good news is that they clearly have enough money to plow back into product development and reward shareholders.
For us, the timing couldn’t be any better. See, with the market’s return to volatility, we’re on the hunt for stocks that will remain more stable.
And the market could get even more turbulent thanks to…
- The Federal Reserve saying it may raise interest rates as many as four times this year.
- Worries about higher inflation rates.
- President Donald Trump’s promise of steel tariffs and the accompanying threat of a trade war.
So I don’t blame you if you’re looking to add some stability – in the form of dividends – to your portfolio in addition to the growth stocks I usually bring you here. I’m doing the same thing.
In our chat on Feb. 27, I noted that AbbVie Inc. (NYSE: ABBV) just boosted its dividend by 35%. And I promised I would follow up with a list of more big winners.
Today I’m keeping that promise.
I have selected five Tech Dividend Winners that offer yields over 3% right now. Plus, I believe that all five “candidates” will be boosting those yields even higher over the next two years or so.
Let’s get into it…
Tech Dividend Winner No. 1: The Biggest ISP You’ve Never Heard Of (Yield: 4.5%)
Cogent Communications Holdings Inc. (Nasdaq: CCOI) doesn’t serve retail consumers like you and me, so you may not know its name.
Yet this is one of the world’s top internet service providers. It just serves large “enterprises” – like corporations and universities – instead of homes and small offices.
Cogent helps clients rout their network data through a global web of leading data centers via ultrafast fiber optics and top-notch switching hardware.
The Center for Applied Internet Data Analysis says that Cogent’s network is the world’s third largest, serving 787 million unique web addresses.
The great news here is that Cogent’s heavy spending to build out its network is largely complete, which means it can let more of its revenue flow right to the bottom line.
Look for that to help the firm’s dividends to grow at an accelerating pace. The firm’s payout grew 13% in 2016, 19% in 2017, and should now grow at a 20% to 25% clip for the foreseeable future.
Tech Dividend Winner No. 2: 891 Million Happy Customers (Yield: 3.9%)
With China Mobile Ltd. (NYSE: CHL), we get a leader that has twice as many users as there are people in the United States. We’re talking about a client base of 891 million mobile customers.
Plus, there’s plenty of room for growth. Right now, only 47.93% of all Chinese citizens use a smartphone (compared to 61% of Americans). That figure is poised to rise to 58.79% by 2022, according to the analysts at Statista.
Serving this market has surely been profitable for China Mobile. Adjusted earnings now approach $20 billion each year.
That’s leading to a rising focus on the dividend which is growing around 10% per year these days.
Tech Dividend Winner No. 3: It Makes the World’s Toughest Electronics (Yield: 3.73%)
Espey Manufacturing & Electronics Corp. (NYSE: ESP) punches above its weight, providing a broad cross section of battle-ready products and services that meet the Pentagon’s needs.
Those products include power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, UPS systems, antennas, and high-power radar systems.
Espey has maintained a solid $1-per-share dividend payment in recent years. Although with defense spending now poised to rise – as we just discussed here – look for the payout to grow in tandem.
Even before the upturn in defense spending, Espey’s order book is swelling. The firm saw its sales rise 62% in the most recent six-month period compared to a year earlier.
Tech Dividend Winner No. 4: The Most Wanted (Yield: 3.65%)
No wonder Broadcom Ltd. (Nasdaq: AVGO) keeps trying to buy what is no doubt the premier R&D firm in the wireless equipment sector.
Not only does Qualcomm Inc. (Nasdaq: QCOM) sell a broad range of cutting-edge chips and related gear, but it also captures solid royalty revenue when other firms license its patents.
The massive amount of adjusted profits Qualcomm has been able to generate has helped its dividend to grow a robust 19% per year over the past five years.
And a new game-changing processor called Snapdragon is poised to help Qualcomm power up earnings to an even higher plane.
Right now, dozens of firms are discovering just how powerful and energy efficient these new chips are. Look for Snapdragon to find broad adoption in a range of devices, including Android and Windows phones, netbooks, car dashboards, wearable devices, and more.
Tech Dividend Winner No. 5: Shows the Way (Yield: 3.4%)
Focused on a niche that is vital to millions of us, Garmin Ltd. (Nasdaq: GRMN) has long remained a leader in global-positioning systems (GPS).
You use this technology when you use your phone’s or car’s GPS to plan out the smartest driving route. But Garmin’s GPS leadership extends to the aerospace, marine, fitness, and defense markets as well.
One example: The firm’s G5000 avionics systems are expected to play a major role in the next generation of The Boeing Co.’s (NYSE: BA) jumbo jets. The firm’s avionics systems are already found in the cockpit of every Embraer SA (NYSE: ERJ) jet.
While Garmin’s dividend has been frozen at $2.04 a share in the past few years, management pledges to start growing those dividend payouts in 2018 and beyond.
You can see that tech sector is now brimming with great dividend payers – and they’re not just the usual FANG stocks.
Any of these will give your portfolio a nice one-two punch – excellent yields and solid growth for the years ahead. That kind of combo could add some real oomph to your bank account… and your portfolio.
Before you know it, you’ll be offering to pay for your grandkids’ college education or planning that round-the-world trip you’ve always dreamed about.
Plus, the stability that dividends bring are a “bonus” in this volatile market.
So this is one case I definitely didn’t mind being wrong.
Take advantage by acting fast on these.
— Michael A. Robinson
Source: Strategic Tech Investor