Please ensure Javascript is enabled for purposes of website accessibility

3 High-Yield Tech Stocks to Buy in September

By Anders Bylund - Sep 1, 2020 at 8:49AM

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

These tech stocks offer both generous dividend yields and promising opportunities for business growth.

Great dividend stocks offer more than just generous dividend yields. Income investors should also look for solid business models that can support the dividend checks with strong cash flows. The company's board of directors must have a public commitment to returning cash to shareholders through some combination of dividends and share buybacks. A long history of rising payouts also helps.

You can find fantastic dividend payers in nearly any industry, including in the tech sector. Tech stocks are better known for high-growth opportunities, but mature companies in this sector are often eager to return cash directly to their shareholders. On that note, here are three high-quality tech stocks that combine generous dividend yields with rock-solid business prospects.

Broadcom: 3.8% yield

Semiconductor designer Broadcom (AVGO -0.91%) offers an effective dividend yield of 3.8% at today's prices. That's not a byproduct of plunging share prices, either. Broadcom's stock is up 9% year to date and 22% over the last 52 weeks.

The real story looks something like this:

AVGO Chart

AVGO data by YCharts

Broadcom's dividend increases are both predictable and bountiful. As a result, the dividend yield has been trending upward for many years, nearly doubling since the start of 2018.

But there's more. Broadcom's free cash flows have grown nearly sixfold over the last five years, and only 46% of the last year's free cash was spent on dividend payouts. The company can pursue further payout increases, splashy acquisitions, and other cash-intensive ideas without risking the dividend policy's cash flow funding.

On top of all that, Broadcom is eyeing serious growth opportunities in the next few years. The company is a major force in wireless radio processors and should benefit from the incoming 5G technology boom. Chips tailor-made for artificial intelligence systems could also drive growth, as could next-generation Wi-Fi chips.

Broadcom investors get the best of both worlds. The company's solid dividends come with a side of exciting growth opportunities -- or the other way around, if you're more of a growth investor.

IBM: 5.2% yield

Technology giant IBM (IBM 0.79%) requires no introduction. Big Blue has nearly completed the transition from a one-stop shop for every enterprise computing need into a more focused specialist in artificial intelligence, data analysis, computer security, and other high-margin software and service offerings.

IBM's meaty 5.2% dividend yield springs from decades of shareholder-friendly cash management policies and 8% lower share prices year to date. The 20-year dividend payment chart is a thing of beauty:

IBM Dividend Chart

IBM Dividend data by https://ycharts.com">YCharts

The company didn't even stop its payouts in the darkest days of the dot-com crash. The COVID-19 pandemic led to a smaller dividend boost than usual, but the increases still kept coming. The cash payout ratio stops at 48%, just above Broadcom's current reading.

I'll admit that IBM's strategy shift is getting long in the tooth and that many investors have tired of this ultra-patient approach. But the company's cash flows are strong, the dividend yield is downright lavish, and IBM should reap generous rewards from this margin-boosting transformation in the upcoming age of artificial intelligence and deep data analysis.

A young person smiles as they make it rain from a stack of hundred dollar bills.

Image source: Getty Images.

Silicon Motion: 3.7% yield

The next name is perhaps the most surprising on my list. Silicon Motion (SIMO 0.20%) is a much smaller business than Broadcom or IBM and its dividend policy is much younger, but the storage controller specialist is showing a serious commitment to cash-based shareholder returns, and its payouts have doubled in four years. This company spent 57% of its trailing free cash flows on dividend checks, leaving plenty of wiggle room for future payout boosts.

Silicon Motion's yield stands at 3.7% today. Low share prices played an important part in these generous yields because the stock has fallen 25% in 2020. We're talking about a leading provider of controller processors for storage systems based on NAND flash memory chips, and that's a difficult place to do business this year. Consumer demand is weak for devices with lots of NAND memory, such as smartphones and tablet computers. NAND-based enterprise storage devices are heading into the mainstream, softening the blow to some degree, but many investors still worry about permanent damage to Silicon Motion's most important target market.

So the stock is trading at just 12 times forward earnings estimates, pushing the effective dividend yield 50% higher year to date. I think that the concerns about Silicon Motion's long-term prospects are overblown and the stock is a great buy at these low prices, as it includes a generous and fully cash-backed dividend policy.

Anders Bylund owns shares of IBM. The Motley Fool recommends Broadcom Ltd. 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

International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$132.54 (0.79%) $1.04
Silicon Motion Technology Corporation Stock Quote
Silicon Motion Technology Corporation
SIMO
$80.64 (0.20%) $0.16
Broadcom Limited Stock Quote
Broadcom Limited
AVGO
$545.43 (-0.91%) $-4.98

*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
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

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.