The rapidly changing tech landscape abounds with fantastic opportunity to transform tired legacy businesses into providers of cutting-edge solutions to meet new customer demands. Which is exactly what HP (HPQ 1.95%), IBM (IBM -0.28%), and Cisco (CSCO -1.30%) are doing -- all while paying stellar dividends to shareholders.
One of the reasons HP, along with IBM and Cisco, offers such tremendous value along with strong dividends is the impatience of some investors. The transitions HP, IBM, and Cisco are in the midst of take time, which some investors simply aren't willing to give. This situation creates a great opportunity for investors with years in mind, rather than weeks or months.
Patience is a virtue
As HP demonstrated last quarter, the PC is not dead. Led by a 12% jump in net revenue from notebooks, to $4.3 billion, which offset a 9% decline in desktop earnings, the company's personal systems segment sales soared 7% sequentially, to $7.51 billion.
In addition to its spot as the No. 1 PC manufacturer in the U.S. market, HP sold 12.96 million units in 2016's second calendar quarter, which was a 5.1% improvement compared to a year ago, increasing the company's global market share to 20.8% -- just a whisker behind Lenovo's 21.2%. HP is winning in the PC wars by targeting niche markets. The new Omen PC, complete with virtual-reality-ready capabilities, is an ideal example.
HP is following the same targeted strategy in its printing unit. The $1.05 billion acquisition of Samsung's printing and copier division combines Samsung's multifunction printers with HP's PageWide technology, creating a less expensive all-in-one printing-and-copier solution for commercial customers. The 3D printing market -- an estimated $13 billion opportunity by 2018 -- is another niche HP is pursuing.
A share price at just seven times trailing earnings, combined with the company's 3.2% dividend yield, warrants HP a spot on a list of cheap dividend-paying tech stocks.
Still a bargain
IBM stock is up 12% year to date, which is a nice change for shareholders. Despite its share-price run, IBM still trades at less than 11 times forward earnings, and boasts a 3.65% dividend. The guarded optimism surrounding IBM is due to the performance of its "strategic imperatives," which include cloud, Internet of Things (IoT), cognitive computing, mobile, and data security.
Strategic imperatives generated $8.3 billion of IBM's $20.2 billion total revenue last quarter, good for a year-over-year gain of 12%. Over the past 12 months, strategic imperatives accounted for $30.7 billion, equal to 38% of total sales. CEO Ginni Rometty's plan was to boost IBM's core unit sales to 40% of revenue annually by 2018.
With third-quarter earnings slated for release on Oct. 17, IBM may prove to have hit its key revenue mark well ahead of Rometty's initial target. Leading the way are IBM's cloud sales, which ballooned to an annual run rate of $11.6 billion last quarter. IBM's strategy of incorporating its cognitive computing wonder Watson, IoT services, data security, and mobile solutions into the cloud is spot-on. That strategy, coupled with the company's targeting of specific industries, will continue to serve IBM shareholders well.
Change is good
When Chuck Robbins took over as CEO in 2015, Cisco needed to change from relying on old-school enterprise routers and switches to focusing on IoT, the cloud, security, and data center sales. And the change is working.
Two of Cisco's top-performing divisions last fiscal year were collaboration and security, climbing 9% and 13%, respectively. Strong performance across the networking company's key business areas, along with shaving over $600 million in operating expenses in fiscal 2016, improved Cisco's gross margins and drove an impressive 21% earnings-per-share jump, to $2.11.
The changes Cisco is undergoing also include cutting 5,500 jobs, equal to about 7% of its global workforce, which has made some investors nervous. The realignment of its engineering division, including the pending departure of Cisco's CTO, may have also spooked some folks. One thing that hasn't changed is Cisco's sky-high dividend of nearly 3.5%. Cisco is a cheap, high-yield stock deserving of a long, hard look.