Are you worried that the market is on the verge of a sell-off even though the economy is recovering? You're not alone. The International Monetary Fund is modeling worldwide economic growth of 5.5% this year, but that doesn't change the fact that the S&P 500 is valued at a hefty 22.5 times its forward-looking earnings.
The situation leaves investors in a pickle.
There's a reasonable solution that lets investors enjoy the best of both worlds, so to speak. A handful of technology stocks positioned to capitalize on the foreseeable future's opportunities are also paying good dividends in the meantime. Here's a rundown of three of these best bets.
Hewlett Packard Enterprise
Dividend yield: 3.3%
Five-year dividend growth (CAGR): 16.9%
The personal computer and printer market may never reprise its heyday of the late 90s and early 2000s, but that's not a problem for Hewlett Packard Enterprise (HPE -5.85%). Remember, this company split with its consumer-oriented arm HP in 2015.
Hewlett Packard Enterprise tackles enterprise-level problems for big companies perpetually in need of new technological solutions. Healthcare technology outfit Cerner, utility company CenterPoint Energy, and even fellow tech name Seagate Technology utilize its wares.
Hewlett Packard Enterprise's edge computing and hybrid cloud solutions are proving particularly marketable. Demand's not been strong enough in the past year to stave off shrinking overall revenue, but the company's held up pretty well given the tough circumstances stemming from the pandemic.
Sales for the year ending in October were only down by 7%. Analysts are calling for (very) modest revenue growth this year and next, but paired with significant earnings growth.
There's an important nuance about HPE that's buried in all the noise surrounding the COVID-19 contagion, however. That is, it's moving away from its reliance on hardware sales, and moving toward more software-as-a-service business.
In other words, rather than simply selling servers to customers and hoping those buyers choose Hewlett Packard hardware again when it comes time to update, those users simply rent access to technology solutions. CEO Antonio Neri even made a point of highlighting within the recently posted first-quarter report the importance of the company's "pivot to as-a-service to drive long-term sustainable, profitable growth."
It's an ideal model to drive dividends, as it generates recurring, predictable revenue.
Dividend yield: 2.5%
Five-year dividend growth (CAGR): 21.8%
Most investors know the name Texas Instruments (TXN 1.31%), but beyond calculators, most of those same investors would struggle to name one piece of equipment, electronics component, or hardware the company makes.
That's not necessarily a bad thing, however.
For the record, Texas Instruments manufactures goods ranging from data converters to sensors to logic boards, just to name a few. There's a good chance an electronic device in your home right now relies on TI tech without you realizing it. In fact, there's a good chance a whole bunch of your gadgets are at least partially powered by a Texas Instruments component, even though the company's name doesn't appear anywhere on the device.
That's the point. Whereas high-profile technology companies like Intel, NVIDIA, and Advanced Micro Devices are in an expensive, perpetual, and sometimes cyclical competition with one another, Texas Instruments' behind-the-scenes business means its top and bottom lines are far more predictable than they might be for other tech players, and considerably more stable from one year to the next.
That being said, don't think for a minute this company isn't taking its select shots at more cutting-edge markets. For instance, Texas Instruments is tinkering with wireless battery management systems that will ultimately extend the life of batteries required to power electric vehicles.
This and other R&D, coupled with its more boring chip foundry, provide shareholders with a nice balance of growth potential and current income.
International Business Machines
Dividend yield: 5.4%
Five-year dividend growth (CAGR): 4.6%
Yes, the company is standing in the shadow of nine years' worth of shrinking sales and income. Big Blue looked like it was starting to turn things around in 2018, but the revenue rebound rolled over. Then CEO Ginni Rometty decided to retire. Then the pandemic took hold. Then the company decided to split itself up. It's a lot for shareholders to get a handle on, particularly without knowing exactly what the post-split companies will look like.
We know "NewCo" will be a managed infrastructure services operation, while the remaining part of IBM -- to still be called IBM -- will focus on hybrid cloud computing and artificial intelligence. The company's divisional profits, however, aren't broken down using those same dividing lines.
The thing is, it doesn't really matter. With a hefty yield, shares priced at a little over 11 times this year's expected earnings, and a manageable $55 billion in long-term debt for the $110 billion organization to divvy up, the stock's priced cheaply for any spinoff scenario. Some would even say it's downright undervalued given how it's now taking a deeper dive into hybrid cloud and AI.
To this end, IBM just unveiled IBM Cloud Satellite, which allows clients to securely deliver cloud-based services and data from almost anywhere, including the "edge" where most end-users are typically found. Last month the tech giant announced a partnership with Palantir Technologies that makes it easier for businesses to deploy AI-reliant apps. These aren't earth-shattering evolutions, but they are evidence IBM is finally moving in the right direction.