A pair of announcements -- one last week from partners BioNTech and Pfizer, and another this week from Moderna -- that two different coronavirus vaccines in late-stage clinical trials appear to be more than 90% effective at preventing COVID-19 were among the more welcome news items of 2020 thus far.
Based on the natural assumption that the imminent availability of highly effective vaccines will speed up global economic recovery, market dynamics are also shifting.
Some "stay-at-home" stocks have seen significant sell-offs in the week since the first of those two vaccine announcements, while names in the energy, industrials, and financial spaces have posted big gains. Successful vaccine roll-outs could also mean diminished growth prospects for some tech companies that have been high-flyers this year, but the tech sector also hosts businesses that are poised to thrive in a post-pandemic world -- including these three dividend-payers that I think could emerge as big winners.
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1. Cisco Systems
While many cloud-focused tech companies have seen surging demand due to the pandemic, Cisco Systems (CSCO 1.66%) has had a tougher time. With so many enterprises operating in work-from-home mode, there's been less demand than usual for Cisco's office networking hardware.
The company has seen upticks in demand for its services offerings such as cybersecurity and teleconferencing, but it still leans heavily on its router and switch hardware business for revenue. The return of employees to on-premises work environments could help rejuvenate its sales growth and tilt its sales mix back toward its higher-margin products.
Over the long term, Cisco will have opportunities to benefit from the deployment of 5G wireless networks and the world's growing need for cybersecurity solutions, but in the nearer term, its stock is also a pandemic recovery play. While working remotely will remain popular even after the threat posed by the coronavirus diminishes, effective vaccines should pave the way for a return to more normal office life. That would likely help Cisco's business cycle back up again.
The company is still generating strong free cash flow and has more than enough resources to weather the current economic downturn and continue expanding its software-based offerings. The stock looks cheap even after the recent gains following its better-than-expected first-quarter results: Cisco shares currently yield 3.7% and trade at about 13 times this year's expected earnings.
2. AT&T
With the pandemic driving many businesses to adopt remote-work operations, AT&T's (T 1.12%) enterprise wireline and internet businesses have been under pressure. The telecom giant's share price is down roughly 26% year to date, and the high-yielding dividend stock could be a good play for a vaccine-enabled return to relative normalcy.
The coronavirus has driven the cancellations or delays of countless sports events and entertainment productions and absolutely crushed the company's Warner Bros. Studio's theatrical release business. AT&T's struggling DirecTV business is also suffering -- the tenuous economic conditions appear to have accelerated the downward trend in its subscriber numbers.
The advent of effective coronavirus vaccines won't by itself put DirecTV back on the path to growth, but it could significantly ease pressures on the company in other important areas. If AT&T's enterprise services segment returns to better performance, that would be a big help, and if the revenue contributions from the Time Warner entertainment business move closer to their usual levels, that would also have a tangible impact on the company's situation.
AT&T's challenges won't clear up overnight, but with its stock trading at just 9 times this year's expected earnings, it's cheaply valued. And its whopping 7.2% dividend yield makes it look even more like a strong play for a post-vaccine world.
3. Taiwan Semiconductor Manufacturing Company
While Cisco Systems and AT&T have both struggled amid this year's unprecedented challenges, Taiwan Semiconductor Manufacturing Company (TSM 4.37%) has put up a strong performance and its outlook has dramatically improved. The chip manufacturer's share price has climbed roughly 60.5% year to date.
That's not to say that the pandemic hasn't caused problems for TSMC. The company was forced to temporarily shut down operations at some foundries, and economic uncertainty has meant less-confident buying from both consumers and enterprises. But Taiwan Semiconductor is also benefiting from some major positive catalysts, and it could be at the beginning of a big growth cycle.
The roll-out of 5G networks and compatible mobile devices is driving demand for semiconductors higher. As TSMC noted in October, 5G phones require between 30% and 40% more chip content than 4G devices. The 5G growth cycle is still in very early innings, and TSMC is also seeing demand tailwinds thanks to an expansion of data center infrastructure, as well as the increasing adoption of artificial intelligence, wearables, and the Internet of Things.
As the leader in third-party chip fabrication, TSMC is going to play a big role in providing the hardware needed to power big tech trends. If effective vaccines help clear up economic uncertainty and boost spending among consumers and enterprises, that will be all the better for TSMC.
The stock's dividend, currently yielding 1.6%, might not look like much, but the company looks sturdy and poised to thrive -- and strong performances should pave the way for more payout growth.
