Many retiree investors might avoid tech stocks because they assume they're too volatile, too expensive, and don't pay stable dividends. They might also struggle to understand how the companies actually make money.
However, the tech sector is also full of mature blue-chip companies that generate stable growth, pay decent dividends, trade at low valuations, and are fairly easy to understand.
Let's take a look at three stocks that check those boxes, and why they're solid long-term investments for most retirees.
Image source: Getty Images.
1. Texas Instruments
Texas Instruments (TXN +0.52%) produces analog and embedded chips for a wide range of industries. These chips aren't very powerful, but newer technologies -- including 5G phones, automated industrial machines, and connected cars -- require an ever-increasing number of these chips.
Over the past few years, TI cut its production costs by about 40% by shifting from 200mm to 300mm wafers. The effects of that shift on its gross margin, net income, and free cash flow (FCF) are easy to see.
Source: YCharts
TI returns most of its FCF to shareholders via stock buybacks and dividends. It reduced its share count by 42% between 2004 and 2020, and it's raised its dividend annually for 17 straight years. It currently pays a forward yield of 2.4%, which is much higher than the 10-year Treasury's current 1.5% yield.
TI suffered a slowdown during the pandemic, especially in the auto and industrial markets, but analysts expect its revenue and earnings to both rise by 15% this year as the crisis passes. Its stock is reasonably valued at 24 times forward earnings, and it should remain a stable investment for the foreseeable future.
2. Oracle
Oracle (ORCL 1.43%) is an enterprise software company. It aggressively transformed its on-site software, including its flagship database products, into cloud-based services in recent years, and expanded its cloud ecosystem by gobbling up smaller players like NetSuite.
Like many other aging tech companies, Oracle is expanding its higher-growth cloud services to offset the sluggish sales of its on-site software. Oracle's revenue growth throughout that turnaround was anemic, but its core business continued to generate stable cash flows over the past decade.
To reward patient investors, Oracle constantly spent most of its FCF on buybacks and dividends. That's why its share count consistently declined, and it boosted the company's earnings per share -- even as its sales growth stalled out.
Source: YCharts
The critics often claimed Oracle's aggressive stock buybacks, which reduced its share count by 42% over the past decade, would impair its ability to expand its cloud-based businesses. Yet Oracle's revenue growth turned positive over the past three quarters, and analysts expect its revenue and earnings to rise 3% and 21%, respectively, for the full year.
Those are healthy growth rates for a stock that trades at just 15 times forward earnings. Its forward yield of 1.3% is admittedly low, but its low cash dividend payout ratio of 24% gives it plenty of room for future hikes.
3. Intel
Intel (INTC +2.50%), the world's leading maker of x86 CPUs for PCs and servers, has repeatedly stumbled in recent years.
Image source: Getty Images.
Its in-house foundry struggled to make the jump from 14nm to 10nm chips, which caused CPU shortages in 2019 and 2020 and handed a large slice of the PC market to rival AMD.
It then fumbled its transition from 10nm to 7nm chips last year, a debacle that resulted in the removal of its CEO Bob Swan, who seemed more interested in cutting costs and buying back shares than fixing the chipmaker's R&D and production issues.
Those problems seem dire, but Intel subsequently hired VMware's CEO Pat Gelsinger, who was once Intel's chief technology officer, to replace Swan. Gelsinger is expected to resolve Intel's R&D issues, sharpen its competitive edge again, and strike back hard against AMD.
That recovery won't happen overnight, and analysts still expect Intel's revenue and earnings to decline 7% and 10%, respectively, this year. But its prospects will likely brighten next year, and the stock still looks dirt-cheap at 13 times forward earnings. It also pays a decent forward yield of 2.2%, and it spent just 27% of its FCF on those payments over the past 12 months.
Intel might remain stuck in the mud for a few more quarters, but its low valuation and high yield should limit its downside potential and make it a safe investment for risk-averse retirees.
