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3 High-Yield Tech Stocks to Buy in June

By Will Ebiefung – Updated Jun 9, 2020 at 5:10PM

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Dividend investing is a great way for investors to earn reliable income.

Dividend stocks tend to have stable, cash-generating business models that can hold up well in difficult economic conditions. That's why they are a great way for investors to earn reliable returns. While the innovative technology sector is usually associated with growth stocks, here are three high-yield technology companies to consider buying in June.

My first pick is IBM (IBM -2.79%), a hardware giant that will benefit from its transition to cloud computing. The second two are Verizon Communications (VZ -2.34%) and Cisco Systems (CSCO -1.12%), technology blue chips that will benefit from the rollout of 5G networks and the Internet of Things (IoT). All three companies have grown their dividends for an extended period of time and are positioned for future success.

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Image source: Getty Images.

1. IBM

IBM is a multinational technology company focused on hardware, consulting, and network solutions. The company made its name selling high-powered mainframe computers that are used for businesses to process things like bulk data and consumer statistics. But while IBM's systems hardware business is still a cash cow with $5.9 billion in 2019 sales, the company's real growth opportunity comes from cloud computing -- a market expected to grow at a compound annual growth rate (CAGR) of 29.2% until 2027.

Its cloud business is growing much faster than the rest of the company, with sales surging from 4% of revenue in 2013 to 27% in 2019. The cloud computing segment also boasts an impressive gross margin of 76.7% compared with 27.7% in IBM's global business services segment and 34.8% in its global technology services segment.

IBM generated $77.15 billion in 2019 revenue and $9.43 billion in profit. Out of that, $5.71 billion went to the dividend, giving the stock a payout ratio of 61%. IBM also boosted shareholder returns with share repurchases worth $1.36 billion in 2019. And it has increased its dividend payment for 25 years straight, earning it the coveted Dividend Aristocrat status.

Its stock currently sports a yield of 5.17%, which is significantly above the S&P 500 average of 1.93%.

2. Verizon Communications

Verizon is a telecommunications giant that generates most of its revenue by selling wireless data and communications services to individuals and businesses in the U.S. The rollout of 5G internet will be a massive growth opportunity for the company.

The market for 5G services is projected to expand at a CAGR of 43.9% from 2021 to 2027. And growth will be powered by the implementation of virtual reality, augmented reality, and IoT -- a megatrend that is seeing devices ranging from toasters to industrial machinery brought online. These use cases will benefit from 5G's faster data speeds and lower latency and could be a major revenue driver for the telecommunications industry over the long term.

Verizon will compete with telecom giants T-Mobile and AT&T to deliver nationwide 5G service coverage, and it claims that its Verizon 5G Ultra Wideband has the power to deliver speeds more than 10 times faster than other networks. 

Verizon generated $131.87 billion in revenue and $19.27 billion in net income in 2019. The company reported diluted earnings per share (EPS) of $4.65 and paid a per-share dividend of $2.44, giving it a sustainable payout ratio of just 52.47%. Verizon's stock currently sports a 4.36% yield, and management has increased the dividend annually for 13 years in a row.

3. Cisco Systems 

Cisco is another high-yield blue chip tech stock that will benefit from the implementation of 5G technology over the long term. The company manufactures and sells Internet Protocol (IP)-based networking solutions along with information technology services and consulting. Cisco reported in 2019 that 58% of its $51.9 billion in sales came from its infrastructure platform segment while 25% came from the services segment.

5G internet will be a major growth opportunity for Cisco's infrastructure business. The company operates an automated cloud-to-client software-based 5G network called Cisco ONE that is designed to help clients make their businesses more profitable by boosting scalability, reducing costs, and slashing time to operation through seamless connectivity. Cisco provides solutions to businesses seeking to connect industrial systems to the internet, which will make it a big player in Industrial Internet of Things (IIoT), a market projected to grow at a CAGR of 7.4% until 2025.

Cisco generated a net income of $11.62 billion in 2019, which translated to a diluted EPS of $2.61 per share. The company has a dividend yield of 3.01% and a payout ratio of 52%, and it has raised its distribution every year for eight years running.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
$122.23 (-2.79%) $-3.51
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$41.52 (-1.12%) $0.47
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$37.84 (-2.34%) $0.91

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

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