In what's poised to be one of the highest-profile tech trends of the next several decades, the Internet of Things (IoT) comes with growth estimates ranging anywhere from bullish to borderline preposterous. Here's a smattering of IoT estimates from a quick search:
- 20 billion devices will be connected to the IoT by 2020, according to Gartner.
- Consultancy Bain & Co. believes IoT-related hardware, software, and solutions will produce over $450 billion in revenues by 2020.
- General Electric estimates that IoT investments for industrial applications alone will total $60 trillion over the next 15 years.
Say what you will about some of these estimates, but the Internet of Things' long-term impact is undeniable, and investors are clamoring to identify the companies helping make the trend a reality. So let's examine the IoT investing theses for dividend stocks Cisco Systems (NASDAQ:CSCO) and Skyworks Solutions (NASDAQ: SWKS).
Global router kingpin Cisco Systems has made waves with its bullish predictions for the IoT. The company claims the Internet of Things presents a $19 trillion -- with a "t" -- commercial opportunity over the next decade. With so much at stake, it should come as no surprise that Cisco itself is doing as much as possible to tap into this big-ticket trend.
The explosion of data that the IoT should produce aligns with Cisco's core networking business, so the company should enjoy something of a natural tailwind here. Better still, the company is also busying itself with bolt-on acquisitions that push it deeper into emerging IoT-related services, such as its early 2016 purchase of cloud-based IoT application platform Jasper Technologies for $1.4 billion.
Cisco also offers plenty to like as an income investment. The stock currently yields 3.4%, far better than the S&P 500's 1.9%. And though we tend to prefer dividend stocks with long track records of dividend growth, Cisco has shown an impressive commitment to increasing its per-share payouts of late. The company has raised its dividend every year since it initiated its dividend policy in 2011; it already increased its divined by 12% in 2017 during its most recent earnings report, which, again, reiterates this IoT play's prospects as an income investment.
Chipmaker Skyworks Solutions has an even more limited dividend history than Cisco, but the company still offers a compelling mix of growth and income that should prove attractive to many tech investors.
Skyworks' M.O. can be best described as simplifying the complex. The company manufactures over 2,500 various types of semiconductors, which it sells to over 2,000 commercial customers worldwide. For the non-engineering crowd, the majority of its components help simplify the transmission and processing of data coming into and out of all manner of electronics, a strategy that has worked to great effect. Since 2012, Skyworks has grown sales from $1.5 billion to $3.2 billion, and its profits have surged from $202 million to $995 million over the same period. Better still, the coming data surge from the IoT will serve as a continued tailwind for Skyworks' various connectivity products, much in the same way as it will for Cisco.
A relative newcomer to dividend payments, Skyworks has done all the right things since it initiated its dividend in 2014. The company has raised its quarterly payouts from $0.11 per share in 2014 to $0.28 at present, increasing its per-share payouts each year along the way. Its shares are admittedly low-yield at just 1%, though.
However, the company enjoys an extremely clean balance sheet, with over $1.3 billion in cash and no debt. Furthermore, the company generated an additional $1.2 billion in cash from operations over the past 12 months, and its 22.7% payout ratio affords plenty of room for the company to safely increase cash distributions. The company may not be an income-investing dynamo today, but Skyworks Solutions certainly offers investors interested in tapping into the long-term growth of the Internet of Things a potent mix of sales and income growth potential.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gartner and Skyworks Solutions. The Motley Fool owns shares of General Electric and has the following options: short August 2017 $87 calls on Skyworks Solutions and short August 2017 $85 puts on Skyworks Solutions. The Motley Fool recommends Cisco Systems. The Motley Fool has a disclosure policy.