What industries immediately come to mind when you think about dividend stocks? If you're like many people, you probably thought of big oil companies, banks, pharmaceuticals, or perhaps real estate investment trusts. I'll bet not many had images of biotechs and technology providers popping into their minds.
But it might surprise some investors to find out that there are quite a few attractive dividend stocks in the biotech and technology industries. Cisco Systems (NASDAQ:CSCO), Gilead Sciences (NASDAQ:GILD), and Qualcomm (NASDAQ:QCOM) particularly stand out. Here's why these are three great dividend stocks that you might not have known are dividend stocks.
Cisco Systems provided much of the networking technology that made the rise of the internet possible. The company still claims a leadership spot in the networking space, but Cisco has also expanded into newer areas, including cloud services and cyber-security.
The technology giant initiated its dividend program in 2011. Cisco has increased its dividend every year since then, with annual increases averaging a whopping 64%. The dividend now yields 3.66%, a level that many owners of the "traditional" dividend stocks in other industries would love to have.
Continuing the streak of annual dividend increases shouldn't be a problem for Cisco. The company currently uses around 54% of its earnings to fund the dividend program. Despite announcing a disappointing revenue outlook for its fiscal fourth quarter, cost cuts have enabled Cisco to increase earnings.
Cisco stock trades at less than 13 times expected earnings. While the company isn't likely to enjoy the heady growth it did years ago, Cisco should be in position to generate reasonable returns for investors on top of the solid dividends.
Gilead Sciences is the biotech that can rightly claim to have helped reduced HIV fatalities, with drugs such as Atripla and Truvada. Perhaps even more impressive, some of Gilead's other antiviral drugs have cured hepatitis C in hundreds of thousands of patients.
The company first paid a dividend in 2015. Gilead increased the dividend payment 10% in 2016 and by the same percentage in 2017. Its yield now stands at 3.23%.
Gilead's payout ratio is 20.4%. Investors should be able to count on future dividend increases with this super-low payout ratio and the company's tremendous cash flow. Gilead's revenue and earnings are falling, though, because of plunging sales for its hepatitis C franchise. The bad news about curing a disease is that there are fewer new patients for Gilead's hep-C drugs. However, the biotech's dividend should remain strong.
As a result of the declining hep-C sales, Gilead stock currently trades at less than 9 times expected earnings. Should the biotech make one or more acquisitions as many expect it to, this bargain-basement valuation probably won't last long.
Qualcomm supplies the chips used in millions of mobile phones and other wireless devices. Pretty much any device that uses CDMA (code division multiple access) or LTE (long-term evolution) digital communication technologies relies on Qualcomm.
The mobile-chip giant paid its first dividend back in 2003. Qualcomm has increased its dividend every year since then, usually by double-digit percentages. Its dividend now yields 3.98%.
Can Qualcomm keep these strong dividend increases coming? Probably. The company currently uses just under 71% of earnings to fund the dividend program. Although Qualcomm faces uncertainties related to a legal dispute with Apple (NASDAQ: AAPL), its pending acquisition of NXP Semiconductors (NASDAQ: NXPI) should help drive future earnings growth.
Qualcomm stock currently trades at less than 14 times expected earnings. This relatively low valuation is due in large part to the Apple litigation. Despite the negatives associated with this dispute, though, Qualcomm is a dividend stock that could also provide plenty of upside potential for patient long-term investors.
Keith Speights owns shares of Apple and Gilead Sciences. The Motley Fool owns shares of and recommends Apple, Gilead Sciences, and Qualcomm. The Motley Fool has the following options: short June 2017 $70 calls on Gilead Sciences. The Motley Fool recommends Cisco Systems and NXP Semiconductors. The Motley Fool has a disclosure policy.