Want to give yourself an excellent opportunity to consistently outperform the broader market and make bank? Then consider packing your portfolio with high-quality dividend stocks.
According to a J.P. Morgan Asset Management report released in 2013, dividend stocks absolutely run circles around their non-dividend-paying peers. Between 1972 and 2012, publicly traded companies that initiated and grew their payouts averaged an annual return of 9.5%. By comparison, non-dividend-paying stocks delivered a 1.6% average annual return over the same period. That's a nearly 500% average annual improvement that investors can take advantage of by simply focusing on profitable, time-tested businesses.
But here's the thing you might not realize: tech stocks can be exceptional dividend payers, too. Even though the tech sector is traditional known for being high-growth, there are a number of high-yield companies that can pack investors' pockets with reliable income. Here are five rock-solid, high-yield tech stocks you can trust that are paying at least 5% (or more) annually.
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Broadcom: 5% dividend yield
Even though it remains a high-growth company, chipmaker Broadcom (AVGO 1.41%) is among the most rock-solid dividend payers of the sector. In less than 10 years, Broadcom's payout has grown from just $0.07 per quarter to its current payout of $3.25 per quarter. At $13 in total payout per year, Broadcom's yield of 5% more than doubles the dividend yield of the benchmark S&P 500.
Moving forward, Broadcom has two core growth drivers. First, there's the rollout of 5G networks. As a manufacturer of wireless chips for smartphones, Broadcom should see a sustainable multiyear demand increase as telecom companies expand the reach of 5G and consumers upgrade their devices. Let's remember that the 4G LTE upgrade cycle lasted multiple years and was a big reason behind Broadcom's profit growth last decade.
Secondly, Broadcom should benefit from a growing reliance on data centers. As a provider of connectivity and access chips, the company will continue to see demand for cloud data storage climb, especially as 5G makes it easier than ever for data to be downloaded.
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AT&T: 7.1% dividend yield
There's no denying that telecom giant AT&T's (T +2.85%) best days are in the rearview mirror. As a shareholder, I don't look for double-digit growth rates. Rather, I look for the consistency that AT&T brings to the table every year and its 7%-plus yield. A dividend, mind you, that has been raised for 36 consecutive years.
And yet, AT&T does have two growth catalysts that could accelerate its organic growth prospects in the near term. One would be the noted rollout of 5G networks. Upgrading its infrastructure isn't going to be cheap for AT&T, but it's going to pay off handsomely in the long run. That's because AT&T generates its juiciest margins from its wireless division and from users consuming data. The move to 5G should encourage additional data consumption and will likely have a positive impact on the company's organic growth rate.
Secondly, there's the upcoming rollout of the HBO Max streaming service, and AT&T's general push toward streaming. While the company is likely to see its DirecTV user count decline modestly over time, the hope is that HBO Max, as well as Time Warner's core assets (TNT, TBS, and CNN), will lure streaming users away from its competition.
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Western Digital: 5.1% dividend yield
In recent months, data storage device and solutions company Western Digital (WDC 5.38%) has seen its stock get pulverized by coronavirus disease 2019 (COVID-19) concerns and the oversupply that tends to crop up in the storage space from time to time. But just like Broadcom and AT&T, this storage specialist is on the verge of benefiting from two catalysts.
In the shorter-term, we're liable to see an uptick in demand for storage solutions in gaming consoles. The next wave of consoles is ready to hit the market, which might be enough to push client device segment sales well beyond $2 billion per quarter. For context, Western Digital's client device segment sales have landed between $1.6 billion and $1.8 billion per quarter over the past year.
However, the more exciting opportunity (and I'm sorry to sound like a broken record) is the expected growth in data centers. Between the push to work from home to 5G bolstering data-demand needs, the cloud is becoming more important than ever. This means Western Digital's solid-state drives are likely to be the company's primary growth driver in data centers for years to come.
Though it remains a highly cyclical company, this 5.1% yield appears to be rock-solid.
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Mobile TeleSystems: 10.8% dividend yield
The highest-yielding tech stock in the draft that you can count on to deliver serious income each year is Russian telecom giant Mobile TeleSystems (MBT +0.00%). Though MTS, as the company is known, doesn't have a set dividend payout, its current yield of almost 11% is bound to turn some heads.
Probably the biggest growth driver over the next couple of years for MTS is going to be network infrastructure upgrades. Again, while upgrading to 5G networks isn't a cheap venture or one that's completed overnight, Mobile TeleSystems stands to benefit immensely given the likely desire of Russians to upgrade their devices to be 5G-capable. Russia has one of the highest wireless saturation rates in the world, making MTS a pretty much surefire beneficiary to see an uptick in high-margin data usage in major cities.
MTS has also been diversifying its operations in recent years to broaden its revenue channels and improve the company's organic growth potential. This has included acquiring MTS Bank and fostering a cloud-services operation, among other ventures. MTS Bank was a particular standout in 2019, with 44% gross loan growth.
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IBM: 5.3% dividend yield
Last, but not least, believe in the ongoing transformation of Big Blue, IBM (IBM 1.45%). Despite IBM being late to the party in transitioning its focus to cloud computing, and thereby suffering persistent year-on-year revenue declines for much of the past six years, its renewed focus on the cloud is beginning to pay off.
Last year, IBM completed a $34 billion all-cash acquisition of Red Hat -- a segment that just so happened to grow sales by 20% on a constant currency basis during the first quarter. What's important here is that, after accounting for a small single-digit percentage of total revenue as recently as the end of 2013, IBM's cloud sales represented almost 31% of total sales in the first quarter of 2020. Cloud sales are growing fast and they offer robust margins, suggesting that organic growth may finally be in the offing for IBM.
Furthermore, IBM has done an excellent job of making the best of a poor situation. Even with legacy sales declining, cost-cutting has helped improve margins in these legacy segments. With free cash flow totaling a whopping $11.6 billion over the trailing 12 months, IBM should have little issue growing its dividend for the foreseeable future.
