Even in a down market, investors want to make money. The bear market of 2022 brought dividends back into vogue as growth investors face off against a potential recession. Dividends provide steady income, and shareholders can also reinvest the proceeds — capitalizing by buying shares while prices are down. This sets them up for more significant future profits.
Texas Instruments (TXN) is a terrific all-weather dividend payer with a long track record of excellence. Verizon’s (VZ) yield is gigantic but comes with increased risk. Apple (AAPL) has a lower dividend yield but makes up for it in stock buybacks and price appreciation, which has advantages.
Let’s find out a bit more about these three dividend-paying tech stocks and why now might be a good time to buy.
1. Cash-management skills at Texas Instruments
Sometimes a company’s history speaks for itself, which is the case at Texas Instruments. This semiconductor stock is a leader in the industrial and automotive sectors but also provides chips for personal electronics, communications, and others. Its 100,000 customers, and the diversity across markets, make Texas Instruments less volatile than some other chipmakers.
Texas Instruments has raised the dividend each year for the last 19 years. Even during the Great Recession, management was able to give shareholders a raise. This consistency should provide some comfort in the current economy. The dividend has grown a whopping 5,473% over that time, rising at a compound annual growth rate (CAGR) of 25%, from $0.089 per share in 2004 to $4.96 per share now.
A lucrative stock buyback program has also reduced the share count by 46% over this period. The economy may be uncertain, but demand for Texas Instruments’ products appears strong. Third-quarter results show a 13% year-over-year increase in revenue, a 16% increase in operating profit, and a 19% increase in earnings per share (EPS).
The current bear market allows investors to snag a yield higher than its historical average, as shown below.
TXN DIVIDEND YIELD DATA BY YCHARTS
Texas Instruments is an excellent all-purpose dividend stock with a bona fide history of rewarding shareholders.
2. Verizon is for yield buffs
Verizon stock has struggled mightily as growth has dried up like a puddle in the desert. The stock is down more than 30% year to date, which has driven the dividend yield up to more than 7%.
In the chart below, the purple line shows the share price, while the orange line depicts the monster yield. The current yield is more than 2.5% above the stock’s 10-year average.
VZ DATA BY YCHARTS
Investors should understand that a high yield generally means more risk. Many are concerned about the company’s ability to continue supporting the dividend, which is part of why the stock price has fallen (which actually raises the yield even higher). But this is a company with real potential to generate profits and a return to growth is achievable.
There were several concerning metrics reported in the latest earnings report. In Q3, revenue was up 4% year over year to $34.2 billion, but net income of $5 billion was down 23.3% year over year. Over the first nine months of the fiscal year, free cash flow was $12.4 billion as compared to $17.3 billion over the same period last year.
The declining metrics aren’t a surprise. High inflation has strapped consumers, and Verizon isn’t adding customers as fast as before. But you don’t usually get a 7% yield when things are great. The one bright spot is that Verizon is still managing to produce large amounts of free cash flow (even if reduced). And despite the lowered free cash flow, Verizon’s payout ratio on its dividend is a very manageable 55%, which continues to leave room for the dividend to grow.
Still, Verizon’s management is focusing on improving consumer results, accelerating growth in business customers, and improving its capital management. It won’t be easy; however, taking a chance on this high-yielder could be worth it if they can execute.
3. Apple is a cash-flow-producing machine
It’s no secret that holding company Berkshire Hathaway and its CEO Warren Buffett love Apple stock. Approximately 41% of Berkshire’s portfolio of stock in 40-plus publicly traded companies and exchange-traded funds is made up of Apple stock.
The reasons are simple. Apple has:
- A vast, loyal customer base and terrific products.
- Increasing sales and earnings.
- Tremendous cash flow from operations returned to shareholders through dividends and stock buybacks.
Apple just released its fiscal 2022 year-end earnings (for the quarter ending Sept. 24) and its results outshined other tech giants like Amazon (AMZN) and Alphabet (GOOG). That Apple could have such consistent results quarter after quarter in a challenging economy is a testament to its management and brand.
Total sales were up 8% in fiscal 2022 to $394 billion. Even better, the company maintained its 30% operating margin despite inflation. Cash from operations ballooned from $104 billion last year to $122 billion this fiscal year, with most returned to shareholders.
Apple’s dividend yield is admittedly tiny at just 0.62%. The company makes up for this with massive stock buybacks. In fiscal 2022, $89 billion worth of stock was repurchased, and $14.8 billion in dividends were paid — a total yield of over 4% of the current market cap. Owning stock is like holding a slice of a company’s pie. When the company repurchases stock, your slice gets larger and is generally worth more. Share buybacks aren’t taxed yearly like dividends, so many investors prefer them and love Apple stock.
— Bradley Guichart
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Source: The Motley Fool