High-quality, dividend-paying tech stocks offer the best of both worlds for investors looking for solid returns. The technology sector will likely continue to be the biggest driver of the stock market's growth in decades to come, and dividend stocks also offer defensive benefits because they provide a likely return, and they also tend to hold up relatively well during periods of market uncertainty.
The potential to enjoy strong capital appreciation while also stacking up substantial dividend payments has obvious appeal, but investors still have to be selective about which companies they back and when they initiate and add to positions. With that in mind, read on for a look at three top dividend stocks in the technology sector that are worth adding to your portfolio this November.
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1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing's (TSM -3.45%) dividend yield of roughly 1.6% means that the stock might not be an ideal fit for investors who are prioritizing big dividend payments in the near term. However, Taiwan Semiconductor has a stated goal of ensuring its yearly dividend comes in at a level that's equal to or higher than the year before, and the company's leading position in a crucial industry points to appealing growth opportunities.
Taiwan Semiconductor stands as the world's largest chip foundry. Companies including Advanced Micro Devices, NVIDIA, Broadcom (AVGO -4.31%), Qualcomm, Apple, and many others rely on the company to produce their chip designs, and the essential role that integrated circuits are playing in the evolutions of technology and industry means that Taiwan Semiconductor stands out as a relatively low-risk growth play that looks primed for strong performance over the long term.
Analysis from JPMorgan in 2019 estimated that Taiwan Semiconductor generated roughly 50% of global foundry revenues and between 80% and 90% of industry profits. Put simply, the company provides an indispensable service to many of the world's leading technology companies, and it's on track to continue facilitating many of the tech trends that will shape the next decade and beyond.
2. Broadcom
Broadcom boasts a solid 3.7% dividend yield, and it looks well-positioned to deliver strong payout growth in the years to come. Thanks to successful acquisition moves, the company has added a portfolio of software offerings to complement its semiconductor business. This enabled Broadcom to rapidly increase its free cash flow and put itself in a position to benefit from a range of growth trends shaping the technology industry.
Broadcom has boosted its payout nearly 640% over the last five years, and the company's strong profit margins and unfolding growth opportunities should pave the way for more dividend increases. Despite huge dividend growth over the last half-decade, Broadcom's payout is safely covered, and increased free cash flow driven by new chip cycles and contributions from its software businesses should pave the way for more payout hikes. Infrastructure software services now account for more than a quarter of the company's revenue, and both Broadcom's semiconductor and software offerings should see positive catalysts from the growth of 5G and the Internet of Things over the next decade.
While some tech and chip stocks have posted huge gains over the last year, Broadcom's stock hike of roughly 19% across the same stretch looks relatively modest, and the company's shares trade at a reasonable 16 times this year's expected earnings. With strong capital appreciation potential, a hefty dividend yield, and a feasible path to more big payout hikes, Broadcom stock offers an appealing combination of value and growth at current prices.
3. AT&T
It's been a challenging year for AT&T (T 1.10%). The company's DirecTV satellite television business has seen subscriber erosion accelerate, and coronavirus-related challenges have meant that the telecom-and-media giant has endured limited productivity from the Time Warner unit it acquired for more than $85 billion in 2018.
Movie theaters have posted dismal attendance even after reopening, many entertainment productions are facing diminished market prospects, and sports events crucial to TV network performance were canceled or postponed. The company's cord-cutting woes look even worse in the context of a relatively weak debut for AT&T's HBO Max streaming service -- a platform many investors hoped would help the business transition into the new media environment this year.
AT&T shares have slid roughly 32% year to date and now trade at 10-year lows. Shares now yield roughly 7.8% and are valued at just 8.4 times this year's expected earnings. DirecTV probably doesn't have a feasible path to recovery, but AT&T's wireless and entertainment segments still have solid long-term outlooks, and investors will be hard-pressed to find stocks that offer superior yield, dividend sustainability, and rebound potential.
The problems facing the business are real and well-documented at this point, but they're also being overemphasized, and the stock sports an attractive valuation and stellar dividend yield. There are also some positive catalysts on the horizon. With 5G network availability expanding and companies including Apple and Samsung just starting to launch real 5G phones this year, AT&T is at the beginning of a network upgrade cycle that should create opportunities over the next decade.
