Please ensure Javascript is enabled for purposes of website accessibility

Get Paid While You Wait: 3 Top Dividend Stocks in Technology

By John Ballard – May 15, 2019 at 9:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Cypress Semiconductor, Texas Instruments, and Intel generate plenty of cash to reward shareholders.

The tech sector is a ripe field to till for market-beating investments. What some investors may not realize is that some of the leading companies that are selling chips in exciting growth areas, such as smart-home products, cars, and data centers, also possess qualities that income seekers should love.

Cypress Semiconductor (CY), Texas Instruments (TXN -2.32%), and Intel (INTC -2.31%) make essential technologies for a more connected world. These companies are well positioned for future growth, generate consistent free cash flow, and pay out above-average dividend yields. 

A woman holds dollar bills in her left hand and swipes them off with her right hand.

IMAGE SOURCE: GETTY IMAGES.

A dividend-paying IoT stock

If you're looking for a tech investment that gives you exposure to the massive growth opportunity of connected cars, smart-home devices, and the Internet of Things (IoT) and also sends some moola your way, Cypress Semiconductor may fit the bill.

Cypress is a leading supplier of WiFi/Bluetooth combos, TrueTouch touchscreen controllers, and USB controllers. These products are seeing rising demand in the automotive, industrial, and consumer electronics markets. As CEO Hassane El-Khoury said on the first-quarter conference call, "everything will become smart, secure, and connected," and Cypress should benefit. 

Not only is Cypress positioned well for these megatrends, but it also is a well-managed company. Consistent with the Cypress 3.0 plan introduced in 2016, management has exited low-margin businesses (NAND memory) while funneling more resources to automotive and IoT, which offer better growth and profitability. Over the last three years, Cypress' revenue climbed 29%, and adjusted gross margin improved from 40.1% to 47.8% through the end of 2018. 

The company hit a speed bump recently with slowing economic growth in China. But that doesn't change the trajectory of the long-term trend of everything becoming more connected. The good news for income seekers is that Cypress dishes out around a third of its free cash flow to shareholders in the form of dividends every year. Its current dividend yield is a generous 2.78%, and Cypress has paid a dividend every year since 2011. 

The old veteran has fresh legs

Texas Instruments might be the most dividend-friendly stock in the tech sector. The company makes embedded and analog processors that do many different things, such as convert and amplify signals, manage power, process data, and many other computing tasks. The company has seen strong demand in recent years from the automotive and industrial markets, which make up 56% of total revenue. Over the last five years, free cash flow has risen by 87%, and all of it has been distributed to shareholders in the form of dividends and share repurchases. 

Like Cypress, TI experienced slowing sales growth in the last few quarters, but the long-term trends of increasing chip content per car are expected to drive rising demand for TI's chips. Moreover, the famous calculator brand excels at controlling costs and finding ways to convert more revenue into free cash flow. This was on full display over the last year, as revenue rose just 1.5% while free cash flow improved 22% year over year. 

TI has increased its dividend for 15 years in a row. Over the last year, the company paid out 45% of its free cash flow as dividends, and the stock currently offers investors an above-average dividend yield of 2.66%. 

A cash-gushing chip giant

Intel is evolving from a PC-focused company to a data-focused one. Big data is where the opportunity is these days, but the transition hasn't been easy for Intel. The first quarter showed data-centric revenue declining 5% year over year as cloud companies work through the excess capacity they purchased last year. Intel has also been fighting off longtime rival Advanced Micro Devices, which has taken market share from Intel in the data center space while Intel has dealt with delays in shipping its 10-nanometer chip. 

The stock dropped hard following the first-quarter earnings report. Even though Intel beat its own guidance, market participants didn't like management's outlook, which calls for revenue to fall 2.5% this year due to China headwinds, lower pricing in flash memory products, and the weak demand in the data center segment. 

However, the company sees demand in the second half of 2019 picking up. Management expects to begin shipping its new 10-nanometer chip in the second quarter, while the 10-nanometer version for servers is planned for 2020. 

After the bruises taken in the first quarter, it might take a while for investors to warm up to Intel again. But investors with a long-term mindset can get paid while they wait with Intel's generous dividend yield.

Intel generated $12.5 billion in free cash flow over the last year, which it can use to invest in innovative new products, such as super-powerful chips for self-driving cars (Mobileye), and still have plenty of dough left over for dividends. Intel distributed 44% of its free cash flow in dividends over the last year -- that puts the dividend yield at 2.66%. To sweeten the deal, the stock is potentially undervalued right now at a forward P/E of just 10.5 times this year's earnings estimates.  

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of Texas Instruments. The Motley Fool recommends Cypress Semiconductor. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$25.77 (-2.31%) $0.61
Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
TXN
$154.78 (-2.32%) $-3.67
Cypress Semiconductor Corporation Stock Quote
Cypress Semiconductor Corporation
CY

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.