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3 Top High-Yield Tech Stocks

By Nicholas Rossolillo - Updated Feb 13, 2020 at 4:06PM

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Big payouts and steady long-term growth make these tech giants worth a look.

Dividends are a great way to offset investment portfolio volatility and boost total return, but technology usually isn't the place to find the best payouts. Nevertheless, as certain techs age and business growth slows down, many stocks in the sector have become solid picks while still offering plenty of long-term and steady expansion potential. Three that fit the bill are Texas Instruments (TXN -0.45%), Broadcom (AVGO -0.59%), and Accenture (ACN 0.16%).

A diversified chipmaker paying the bills

Texas Instruments is an efficient cash cow for shareholders. The diversified chipmaker -- which focuses on industrial markets like autos and healthcare and consumer electronics -- has been stuck in the semiconductor slump for over a year now along with its peers. Owners of the stock have barely noticed as shares have continued to chug higher and currently trade near all-time highs.  

Texas Instruments' secret is its focus on efficient operations and aggressive return of free cash flow (basic profits after cash operating expense and capital expenditures are paid). Revenues in 2019 fell 9%, but earnings per share only fell 6% -- thanks in large part to share buybacks. Texas Instruments boasts having nearly halved its outstanding share count in the last decade-and-a-half, including a nearly 4% reduction in the number of shares during 2019. As a reminder, share repurchases boost earnings per share, effectively creating a non-cash dividend payout to owners of a stock.

Texas Instruments has been able to pull that feat off with strong cash flow generation on its operations. Even though revenues were down high single-digits last year, free cash flow was only down 4% from 2018 at $5.80 billion and represented 40% of revenue. Those are some high profit margins. In keeping with its stated goal, all of that cash was returned to shareholders via $3.01 billion in dividends (which incidentally equates to a 2.7% yield as of this writing) and $2.96 billion in stock repurchases.

But why consider TXN now? Besides the big payout, the company reported demand for its wares was stabilizing in the fourth quarter of 2019. Chipmaking is a cyclical business and a rebound in sales appears to be right around the corner. The stock does trade for 21.2 times trailing 12-month free cash flow and a premium 22.2 times expected one-year forward earnings, but there's good reason for paying up. This efficient chip manufacturing and distribution machine is a great slow-and-steady technology investment doling out income along the way. 

Transitioning to a hardware and software platform

Speaking of high-yield chipmakers, Broadcom also belongs in the conversation alongside Texas Instruments. A product of the mega-merger between Avago and Broadcom back in 2015, the networking and wireless hardware maker currently yields a 4.1% a year dividend. There's more to the story than just income, though.

Like industry peer Texas Instruments, Broadcom has been working through a cyclical decline in its core semiconductor business. Sales in that segment have been falling year-over-year for the duration of 2019 and were down 7% in Q4. However, on a quarter-over-quarter basis, Broadcom reported improvements in its primary business in the third quarter and Q4 and sees a return to year-over-year growth in the second half of 2020.

Added to the bottoming hardware business is Broadcom's complementary enterprise software segment. Enterprise software was primarily built via its CA Technologies acquisition in 2018 and Symantec's Enterprise Security business in 2019 (the other consumer and small business half of Symantec still exists as NortonLifeLock (NLOK 0.60%)). Broadcom's acquisitive appetite for higher-growth software to complement its network hardware equated to an 8% increase in revenue in 2019 and 12% increase in free cash flow. For 2020, management issued an outlook for 11% revenue growth as its chip markets rebound and software aimed at data centers, cloud computing, and security continues to grow.

Managing the $30.0 billion in debt racked up from takeovers will be part of the capital allocation strategy in the next couple of years, but Broadcom still generates enough free cash to also acquire some stock as well -- retiring nearly 3% of its outstanding share count in 2019. Paired with the dividend and healthy growth prospects, Broadcom's valuation of 14.2 times trailing 12-month cash and 12.3 times forward earnings looks like an especially attractive value. 

A man in a suit in the background holding a tablet with a brain made of electrical connections hovering above it.

Image source: Getty Images.

Navigating the future of technology

Our last entry deviates from the first two. Rather than a focus on hardware, Accenture is a tech service company, consulting with organizations around the globe and crafting plans to help them navigate a fast-shifting world that is going the way of digital. Besides having a very different-looking business, Accenture pays just a 1.5% a year dividend. That hardly qualifies as a high-yield stock. 

Again, the dividend is only part of the story. Added to cash payments, Accenture is another aggressive share repurchaser. It bought back $2.69 billion worth of its shares in 2019 in addition to the $1.86 billion paid in dividends. Another $729 million was repurchased in fiscal first-quarter 2020 alone and the company had another $3.0 billion remaining on its current share buyback plan. Considering the current market cap of $135 billion, that adds another 3% in effective cash return yield to the current 1.5% dividend.

Plus, Accenture's services are in high demand as new technologies are emerging and disrupting global business -- things like artificial intelligence, 5G mobile networks, and cloud computing. After an 8.5% rise in revenue in 2019 (excluding currency exchange rates), Q1 2020 revenue grew 9% (excluding exchange rates) and earnings grew 7%. Management forecasts a 6% to 8% rise in revenue and a 4% to 7% rise in earnings for full-year 2020. It isn't massive upside, but it adds to Accenture's slow-and-steady run over the last two decades helping organizations navigate the constantly changing technology landscape.

The stock trades for 23.6 times trailing 12-month free cash flow and 24.6 times forward earnings. It's premium pricing, but once again warranted given the consistent returns and high return of cash to shareholders. Put simply, Accenture is a worthy tech addition for investors seeking high yield.

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Stocks Mentioned

Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
$168.97 (-0.45%) $0.77
Accenture plc Stock Quote
Accenture plc
$287.24 (0.16%) $0.47
Broadcom Limited Stock Quote
Broadcom Limited
$584.77 (-0.59%) $-3.47
NortonLifeLock Inc. Stock Quote
NortonLifeLock Inc.
$24.09 (0.60%) $0.14

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

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