Please ensure Javascript is enabled for purposes of website accessibility

3 High-Yield Tech Stocks to Buy in March

By Leo Sun - Mar 8, 2021 at 9:18AM

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 three mature tech companies offer high yields with low valuations.

Growth-oriented investors often avoid tech stocks that pay dividends, since companies usually only start paying dividends as their growth decelerates and they run out of ways to reinvest their excess cash.

Meanwhile, income-oriented investors frequently turn to more defensive sectors, such as consumer staples or large-cap pharmaceuticals, for higher yields than mature tech stocks. The yearlong rally in tech stocks throughout the pandemic has also significantly reduced the yields of many tech stocks while inflating their valuations.

However, investors might be overlooking several mature tech stocks that pay high dividend yields above 3% but still trade at low P/E ratios. Here are three of those stocks: Cisco Systems (CSCO 0.95%), Juniper Networks (JNPR 2.56%), and Hewlett Packard Enterprise (HPE 2.47%).

Plants sprouting from stacks of coins.

Image source: Getty Images.

1. Cisco Systems

Cisco, the world's largest producer of networking routers and switches, struggled with sluggish demand for its infrastructure hardware over the past year.

Its revenue declined year over year for five straight quarters as the pandemic disrupted its supply chains and network upgrades on enterprise campuses. It also ceded contracts in China, which accounts for a low-single-digit percentage of its sales, to domestic rivals like Huawei amid the ongoing trade war.

However, Cisco expects to return to growth in the third quarter, and analysts expect its revenue to come in flat in fiscal 2021 (which ends in late July) before rising 4% in fiscal 2022 with 6% earnings growth.

In short, Cisco's core infrastructure business will pass a cyclical trough as the pandemic passes and enterprise customers resume their network upgrades. Its smaller security business, which remained resilient as its hardware business struggled, should also continue to grow.

Therefore, it's smarter to hold on to Cisco's cyclical stock than to sell it, especially if you're a value-oriented income investor. The stock trades at just 13 times forward earnings, the company pays a forward yield of 3.3%, and it has hiked its payout annually ever since its first dividend payment in 2011 That streak should continue, since it spent just 42% of its free cash flow (FCF) on its dividend over the past 12 months.

2. Juniper Networks

Juniper, Cisco's smaller rival in networking switches and routers, struggled with many of the same headwinds over the past year. Yet Juniper's revenue has already risen year over year over the past two quarters, and management expects revenue growth to accelerate in the first quarter of 2021.

A 3D model of a city with network connections illustrated on top.

Image source: Getty Images.

Analysts expect Juniper's revenue and earnings to rise 4% and 6%, respectively, for the full year. The underdog expects to keep pace with its larger rivals, including Cisco and Huawei, by selling more cloud and AI-optimized hardware and expanding its higher-margin software and services business.

Juniper's performance across its end markets also remains balanced and strong. Its cloud revenue has risen for two straight years, its enterprise revenue has increased for four straight years, and it's gradually stabilizing its weaker service-provider business.

But the market isn't paying much attention to Juniper's turnaround, and its stock still trades at 13 times forward earnings. The company pays a forward yield of 3.4%, and it's raised that payout annually over the past three years. It spent just 52% of its FCF on those payments over the past 12 months.

3. Hewlett Packard Enterprise

Hewlett Packard Enterprise, having split off from HP (HPQ 1.18%) in 2015, retained its former parent company's enterprise hardware and software businesses.

The new company, which further streamlined itself with additional divestments, now mainly sells compute, high-performance computing (HPC), storage, and edge computing hardware and software. It also competes against Cisco and Juniper in the ethernet switching market.

HPE struggled with the same headwinds that battered Cisco and Juniper in the enterprise market, and its revenue and adjusted earnings fell 7% and 24%, respectively, in fiscal 2020.

However, analysts expect HPE's revenue and earnings to rise 2% and 33%, respectively, this year as the pandemic passes. The company expects sales of its cloud, edge computing, and AI-oriented hardware and software to accelerate throughout the year, and it recently boosted its full-year FCF forecast from $1.1 billion to $1.4 billion -- up from just $560 million in 2020.

That's a rosy forecast for a stock that trades at just eight times forward earnings. The company pays a forward yield of 3.3%, and it spent only 65% of its FCF on that payout over the past 12 months. It doesn't raise its dividends as consistently as Cisco or Juniper, but its low cash dividend payout ratio gives it plenty of room or future hikes.

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

Hewlett Packard Enterprise Company Stock Quote
Hewlett Packard Enterprise Company
HPE
$14.51 (2.47%) $0.35
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$43.35 (0.95%) $0.41
HP Inc. Stock Quote
HP Inc.
HPQ
$35.06 (1.18%) $0.41
Juniper Networks, Inc. Stock Quote
Juniper Networks, Inc.
JNPR
$29.61 (2.56%) $0.74

*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 service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

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.