The tech industry wasn't always a great place to turn for investors seeking big dividend yields, but that has changed as many of the sector's players have moved into more mature states of business and sought other ways to reward their shareholders amid slowing earnings growth or challenging transitional periods. Today, the technology industry plays host to some of the most compelling income-generating investments on the market, and dividend yields have been elevated and earnings multiples reduced after recent sell-offs that have hit the market.
While analysts weigh the prospects of short-term volatility, long-term investors could have an opportunity to build their positions in some top, dividend-paying technology investments. Read on for a look at why AT&T (T 2.35%), IBM (IBM +0.54%), Seagate Technology (STX +0.00%), Apple (AAPL +0.72%), and Cisco Systems (CSCO +0.46%) are high-yield stocks that should be on your radar.
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AT&T
| Yield | FCF Payout Ratio | Earnings Payout Ratio | Years of Uninterrupted Payout Growth | Payout Growth Over the Last 5 Years |
|---|---|---|---|---|
| 6.8% | 45.3% | 53.5% | 34 | 10.9% |
Data sources: AT&T, Yahoo! Finance, Dividend.com. FCF = free cash flow. FCF and earnings payout ratios based on adjusted results over the trailing 12-month period and forward annualized payout.
Investors looking for big yield and dependable payout growth should have telecom giant AT&T near the top of their watchlist. While the broader market closed out 2018 with a slide into bearish territory after years of growth, sluggish stock performance is nothing new for the telecom giant -- as stiff competition in the mobile space and cord-cutting trends weighing on its DirecTV satellite television business have dragged the stock down roughly 13% over the last five years.
Pressures from those challenges will likely be ongoing in the near term, and while investors shouldn't look to AT&T for big earnings growth, there's still a relatively sturdy business with a wide imprint, here; some potential growth drivers in entertainment, advertising, 5G, and the Internet of Things; and a great returned-income component. With a whopping 6.8% dividend yield and a fantastic history of annual payout growth, AT&T stock looks worthwhile trading at just 8.5 times this year's expected earnings.
Check out the latest AT&T earnings call transcript.
IBM
| Yield | FCF Payout Ratio | Earnings Payout Ratio | Years of Uninterrupted Payout Growth | Payout Growth Over the Last 5 Years |
|---|---|---|---|---|
| 5.4% | 45.3% | 53.5% | 23 | 65.2% |
Data sources: IBM, Yahoo! Finance, Dividend.com. FCF = free cash flow. FCF and earnings payout ratios based on adjusted results over the trailing 12-month period and forward annualized payout.
Like AT&T, IBM is a technology stock that has languished in recent years as shifting market dynamics have pressured its business. Big Blue spent decades dominating the enterprise computer hardware market and providing software to back up those products, but a shift to cloud computing and other software-based solutions has led to shrinking demand for the company's legacy products and required a pivot to cloud software and services in hopes of restarting its growth engine.
IBM has had its share of setbacks and false starts with that initiative, and the stock has suffered for it -- with shares having lost roughly 25% of their value over the last year. However, the tech giant trades at a basement-level 8.5 times forward earnings and packs a fantastic dividend. If the company's transformation to a cloud-focused business proves moderately successful, IBM stock could see a dramatic rebound. It looks like that will take some time, but the stock's big dividend yield and dependable payout growth should make it easier to ride out potential rough patches.
Check out the latest IBM earnings call transcript.
Apple
| Yield | TTM FCF Payout Ratio | TTM Earnings Payout Ratio | Years of Uninterrupted Payout Growth | Payout Growth Over the Last 5 Years |
|---|---|---|---|---|
| 2% | 22.8% | 24.8% | 6 | 67.5% |
Data sources: Apple, Yahoo! Finance, Dividend.com. FCF = free cash flow. FCF and earnings payout ratios based on adjusted results over the trailing 12-month period and forward annualized payout.
Apple stock's dividend yield might not look like much when stacked against the other companies profiled in this list, but it presents an appealing starting point for dividend-growth investors. Apple has been aggressive in raising its payout, but big sell-offs on the heels of some worrying signs for the company's hardware business have also played a role in the stock's heightened yield of roughly 2%. That's roughly in line with the S&P 500 index's average yield of 2.1% -- a notable convergence because Apple's dividend will likely grow much faster than the market average over the next decade. The iCompany has nearly doubled its payout since it resumed returning income to shareholders in 2012, and its low payout ratios give the company flexibility to increase its payout even as it reinvests to develop new business avenues.
Shares trade at 13 times this year's expected earnings.
Check out the latest Apple earnings call transcript.
Cisco Systems
| Yield | FCF Payout Ratio | Earnings Payout Ratio | Years of Uninterrupted Payout Growth | Payout Growth Over the Last 5 Years |
|---|---|---|---|---|
| 5.4% | 47.1% | 50.7% | 8 | 73.7% |
Data sources: Cisco Systems, Yahoo! Finance, Dividend.com. FCF = free cash flow. FCF and earnings payout ratios based on adjusted results over the trailing 12-month period and forward annualized payout.
Momentum for software and security ventures and progress stemming from the company's acquisitions push have helped Cisco Systems stock outperform the broader tech sector over the last year, with shares trading up roughly 10% over the last 12 months. Even with those gains, a big payout increase and better-than-expected earnings growth means its stock still sports a 3.2% dividend yield and trades at just 14 times forward earnings.
The company's transition to a recurring revenue model that places greater emphasis on software (while still supporting the router and switch business that has long been its bread and butter) is producing encouraging results. Cisco's strong balance sheet, non-prohibitive valuation, and opportunity to continue playing a central role in the information technology industry add to the appeal of its impressive and fast-growing returned income component.
Check out the latest Cisco Systems earnings call transcript.
Seagate Technology
| Yield | FCF Payout Ratio | Earnings Payout Ratio | Years of Uninterrupted Payout Growth | Payout Growth Over the Last 5 Years |
|---|---|---|---|---|
| 6.6% | 36% | 49.1% | 0 | 46.5% |
Data sources: Seagate Technology, Yahoo! Finance, Dividend.com. FCF = free cash flow. FCF and earnings payout ratios based on adjusted results over the trailing 12-month period and forward annualized payout.
Hard-drive company Seagate Technology has been relatively resilient amid indications that key products in the storage and memory-chip markets are moving through down cycles. While the company's stock has shed roughly 10% of its value over the last year, that performance looks pretty good compared to competitor Western Digital, which has seen the value of its stock decline by more than half over the stretch thanks to weakening demand for NAND memory chips. Seagate's smaller exposure to the NAND memory chips that are core components in solid-state drives is working in its favor, and the company is seeing solid sales momentum thanks to rising enterprise storage demands.
The company hasn't raised its payout since 2015, but its stock boasts a sizable yield, and its dividend is well covered by both earnings and free cash flow. Shares are worth considering as they trade at roughly 7.5 times this year's expected earnings.
Check out the latest Seagate Technology earnings call transcript.
