For investors in search of income, three high-yield dividend stocks worth consideration in September include Qualcomm (QCOM -2.29%), IBM (IBM -0.22%) and Enterprise Products Partners (EPD 1.74%). Two also offer outstanding value.
Time heals all wounds
Tim Brugger (Qualcomm): If you follow the tech industry, you've likely heard about the legal snafus Qualcomm's facing: fines from South Korea, investigations by the U.S. Federal Trade Commission (FTC), and its biggest customer Apple (AAPL -1.66%) joining the legal parade alleging illegal patent licensing fees.
The result has been a 21% drop in value this year. Thing is, Qualcomm has been down this path before with China, which levied a $975 million fine nearly three years ago, and required lower licensing fees for the privilege of doing business in one of the world's largest markets. Today Qualcomm regularly cites its growing revenue in China as a key driver of growth.
As investors saw last quarter, the moves by Apple and a dispute settlement with BlackBerry hit Qualcomm where it counted. Fiscal third-quarter sales of $5.3 billion dropped 12% year over year, led by a 42% decline in Qualcomm's licensing revenue. If not for Apple refusing to pay its suppliers, which in turn pay Qualcomm, last quarter would have been a win.
Paying $940 million to BlackBerry and another $927 million to South Korea hurt, but like the issues with China those "problems" are done and gone. But considering its beaten-down stock price, one of the industry's best dividend yields of 4.45%, and forays into cutting-edge markets to fuel growth, value investors in search of income in September would be wise to give out-of-favor Qualcomm a close look.
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One of the best dividends in tech
Keith Noonan (IBM): Big Blue is going through another reinvention period. While that means there's uncertainty in the company's outlook, the stock has the makings of a standout tech-sector value play that's worth buying to hold for the long term.
After shedding roughly 12% of its value year to date, the company trades for less than 11 times forward earnings estimates and packs a roughly 4.2% dividend yield --- factors that should help put a floor on its share price and allow investors to ride out any bumps on its road to a turnaround. IBM is also one of the most reliable tech companies to turn to for solid dividend growth, with a 22-year history of annual payout increases and an average annual growth rate of roughly 14% over the last five years, so the returned income picture will likely only get better with time.
Putting the tech giant's low earnings multiple in perspective, waning demand for its legacy hardware and software offerings has led to 21 consecutive quarters of year-over-year sales declines, and the company's trailing-twelve-month revenue is at its lowest point in more than 15 years. Product categories like storage and mainframes are likely to continue declining over the long term, but the company's growth initiatives are showing promise, and its big bets on artificial intelligence should help it stay competitive in the fast-growing cloud services space.
With its stellar dividend profile and a low earnings multiple in mind, IBM's turnaround story is worth being a part of.
A growing income stream for a great price
Matt DiLallo (Enterprise Products Partners): Pipeline and processing company Enterprise Products Partners currently yields an enticing 6.4%. Despite that well-above-average yield, it's a low-risk payout. That's because long-term fee-based contracts underpin 93% of the company's earnings, it has a top-notch balance sheet that includes a solid investment-grade credit rating and a low leverage ratio, and the company currently has a coverage ratio of 1.2.
Aside from that rock-solid payout, another thing that's particularly appealing about Enterprise Products Partners right now is its highly visible growth. The company currently has $9 billion of expansion projects under construction, including $2.7 billion that should enter service by the end of this month. Given that long-term contracts support these assets, Enterprise should see a significant boost in cash flow later this year. That makes it an easy call that the company will continue increasing its payout, which is something it has already done for 52 straight quarters.
Another thing the company has going for it right now is its valuation. Enterprise's price has declined a bit this year, which when combined with a rebound in its earnings has resulted in its EV-to-EBITDA ratio (enterprise value to earnings before interest, taxes, depreciation, and amortization) falling below 15. That's the lowest level since the darkest days of the oil market downturn early last year.
Given all these factors, September seems like an excellent time to buy this top-notch, high-yield stock.
