The power that technology has to influence the evolution of other industries makes the tech sector the single best place to look for stocks that have big capital appreciation potential. As many companies in the space have built up resources and settled into posting consistent (and expanding) profits, the sector has also become a great place to look for stocks with attractive dividend yields and payout growth.
Quality dividend-paying tech stocks offer attractive risk-reward dynamics and could play a foundational role in elevating your portfolio's performance. Within that mold, investors seeking stocks that have what it takes to deliver long-term wins should consider buying Microsoft (MSFT -1.96%), Broadcom (AVGO -2.48%), and Verizon (VZ 0.98%) this month.
Here's why these three tech stocks are worth buying right now.
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1. Microsoft: Strong competitive advantages and payout growth
Microsoft's deft transition to a subscription-focused cloud-software company has made it one of tech's biggest turnaround success stories. Its share price has climbed more than 350% over the last five years and is up 938% over the last decade, and the stock continues to look attractive despite the impressive rally. An extremely safe dividend is part of the appeal.
Microsoft's 1.1% yield might not look like much, but the company's excellent financials and leadership position in the tech industry put it in a good position to deliver strong payout growth over the long term. The tech giant has raised its payout annually for 10 years running and increased the dividend 250% across that stretch.
Between its entrenched position in the enterprise market and leading offerings in operating systems, cloud computing services, and office software, Microsoft is poised to play a big role in the growth of digital business. The company thrived amid challenges created by the coronavirus pandemic this year, with more work moving to online channels boosting demand for productivity software and cloud computing services.
First-quarter sales for the company's Azure cloud computing services rose 47% year over year on a constant basis. The company's enterprise videoconferencing service Teams recently hit 115 million daily active users, up 50% from its levels at the end of April. Microsoft managed to grow earnings 32% year over year in the quarter, and the business has never looked better positioned for the future. Strong competitive advantages should bring strong earnings growth over the long term and pave the way for more dividend increases.
2. Broadcom: Stronger for its revenue diversity
Broadcom is a semiconductor stock that yields roughly 3.7% on its dividend while providing chips for networking, broadband, and server storage connectivity, among other uses. The company has also made a successful push into the software space courtesy of a series of acquisitions. And solid performance for the company's chip business and a flush of new cash from its acquisitions have enabled huge payout growth over the last five years.
AVGO dividend data by YCharts.
The dividend remains well covered even with the huge increase to its payout, and the company looks positioned to thrive over the long term thanks to strong margins and contributions from the software businesses it has absorbed over the last five years.
Broadcom's acquisition of Symantec's enterprise software unit has positioned the company to tap into favorable demand trends in cybersecurity. Integrating CA Technologies into the fold has bolstered the company's position in digital communications, and its acquisition of Brocade has allowed the company to better tap into rising demand for networking storage hardware and software to support data centers. These units will have their ups and downs individually, but together they have left Broadcom better-positioned for the future of networking and digital communications.
The company's semiconductor business also looks poised for a cyclical upswing, with elevated demand and margins being driven by demand for 5G connectivity chips. Broadcom now has plenty of ways to win and looks stronger for its diversity. Investors can probably look forward to more big dividend increases in the near future.
3. Verizon: Low-risk growth and attractive yield
Verizon stands out as a sturdy, attractively valued income stock that looks poised to benefit from 5G trends. The telecom giant's shares yield roughly 4.2% at current prices and trade at about 12 times this year's expected earnings.
The company hasn't been completely immune to coronavirus-related pressures, but its wireless services segment continues to look pretty strong and should post solid performance even if economic conditions remain challenging. Verizon's earnings and payout growth might proceed at a relatively slow and steady pace over the next decade, but the company stands out as a dependable set-it-and-forget-it investment that can be counted on for a stream of high-yield dividend payments.
There's also a chance that Verizon will be able to post growth that significantly exceeds the market's expectations. It has the largest 4G wireless network in the U.S. and has also been routinely ranked as the best-performing and top-rated consumer wireless network. Strong infrastructure and a powerful brand could help the company be one of the biggest beneficiaries of 5G in the wireless industry. The company will also have the opportunity to sell expanded network and software services to support Internet of Things devices and platforms.
The 5G rollout is still in its very early stages, and the new network technology could become a substantial growth catalyst for the company over the next decade. High-performance wireless internet service will only see increased demand from consumers and enterprises as more technologies rely on it, and Verizon is in good position to maintain its role as a top provider in the space.
