A bear market is never easy for investors to navigate. It heightens emotions in a negative way. Plus, increased volatility only exacerbates investors’ inability to make sound decisions. Despite that, though, those with a level head can still find undervalued tech stocks with dividends.
With the Federal Reserve’s decision to aggressively hiking interest rates this year, we’ve seen rates rise across the board. Whether that’s at the bank or with Treasury bonds, rates have become far more competitive with stocks that pay dividends.
How do you turn down a “risk-free” 4% to 5% in Treasuries to chase a stock with a 2% dividend yield? Worse yet, that stock is far from risk free. And as previously mentioned, the bear market likely means said stock has already seen considerable losses.
The environment is no doubt very difficult right now. But we can still sniff out some undervalued tech stocks with dividends. Here are five such examples.
Undervalued Tech Stocks With Dividends
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) stock is a longtime favorite of mine. The company consistently generates monstrous free cash flow, which allows it to pay a nice dividend, buy back stock and make acquisitions.
Broadcom generates solid growth and runs a tight ship. It also generates stronger operating margins than all of the FAANG group. And despite the recent rally, shares still pay out a 3% dividend yield.
If AVGO stock were to revisit the 2022 low — requiring a decline of roughly 20% from current levels — that yield would swell to about 4%. Further, the price-to-earnings (P/E) ratio would drop to just 11 times this year’s earnings.
Of course, keep in mind that analysts expect more than 20% revenue growth this year and 6% revenue growth next year. On the earnings front, estimates also call for 33% and 8% growth this year and next, respectively.
Given all of these positives, Broadcom is certainly one of the undervalued tech stocks with dividends worth considering.
Intel (INTC)
Intel (NASDAQ:INTC) is another chip stock on this list of undervalued tech stocks with dividends. However, the company is not doing nearly as well as Broadcom.
Intel is seeing painful top- and bottom-line pressure, which has allowed its dividend yield to swell to 5%. At that price, it’s actually competitive with Treasury bonds and other rising yields. Given that INTC stock is almost 60% below this decade’s high, investors may find it attractive. However, there is a bit of a catch.
Shares of INTC may trade at about 5 times last year’s earnings, but no one cares what Intel did last year. They care about what the company is doing this year, right now — and what it’s doing in the future.
Unfortunately, that’s where Intel struggles a bit. Analysts expect a 15% decline to revenue this year and a 4% decline next year. For earnings, estimates call for a whopping 64% decline this year and a 4% dip in 2023.
More than three quarters of the way through 2022, though, and the focus is starting to shift to next year’s “not as bad” decline. If shares revisit the lows, INTC stock may be worth a look, so long as its business can stabilize.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) has not had an easy year, either. Like other chipmakers, QCOM stock has been pummeled, with shares suffering a peak-to-trough decline of more than 45%. That said, that’s much better than many other names in the space.
This decline has left shares trading at about 12 times this year’s earnings expectations. Even though analysts expect a slight dip in this year’s numbers, Qualcomm has also grown notably over the last few years.
The recent development with Apple (NASDAQ:AAPL) is both a blessing and a curse, for instance. A few years ago, Apple nixed a lawsuit it had with Qualcomm and instead partnered with the company to produce iPhone chips. At the same time, Apple was working on its own in-house chip solution. When it couldn’t produce the chip in time, Apple had to re-up its contract with Qualcomm.
That flooded Qualcomm with additional revenue and income, while also buying the company time to further diversify its business. All said, accompanied by a 2% dividend yield, QCOM stock looks like a long-term winner.
IBM (IBM)
At the start of the year, how many people would have expected IBM (NYSE:IBM) to be a leader in tech? IBM stock is up 9% YTD and more than 25% over the past 12 months. Compare that to the Nasdaq Composite, which is down about 27% over the same measures.
Every FAANG component has also generated a negative return over those timeframes. As for IBM, though, there is a surprising amount of bullish catalysts to consider.
First, despite the rally this year, IBM stock still pays a 4.4% dividend yield. It also trades at just 16 times earnings. That’s a bit rich for shares historically, but keep in mind that IBM is trading at its highest level in several years.
In addition to that, analysts are fairly bullish on estimates for 2022. Despite just 5% revenue growth, they expect to see 15% earnings growth for the year.
The one concern here would be that, if the market starts to roar higher it’s possible investors rotate out of safe undervalued tech stocks with dividends and into higher growth, higher risk holdings.
Texas Instruments (TXN)
Last but certainly not least on this is Texas Instruments (NASDAQ:TXN), which yields just under 3% with its dividend.
I like this name for several reasons, but perhaps most of all for its relative strength. Shares of TXN stock suffered a peak-to-trough decline of 28%. That’s far better than the VanEck Semiconductor ETF (NASDAQ:SMH), which declined 47% from its high. It’s also better than the Nasdaq and the FAANG components.
Relative strength aside, Texas Instruments generates strong free cash flow and operating margins. Speaking to the latter, its trailing operating margins of 53.1% is the best of the stocks on this list — and by a wide margin. The next closest firm is Broadcom at 40.7%. And remember what we noted earlier — Broadcom generates better operating margins than all of FAANG.
Although TXN stock is a little more costly at 18 times earnings, these qualities are hard to overlook.
— Bret Kenwell
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Source: Investor Place