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3 Dividend-Paying Tech Stocks to Buy Right Now

By Rich Duprey – Oct 2, 2021 at 10:57AM

Key Points

  • Dividend stocks as a class significantly outperform their non-dividend-paying rivals over the long term.
  • Between capital appreciation and income generation potential, these three stocks can boost income-seeking investors' returns.

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Yes, there are solid options for income investors in the tech sector -- and they have growth potential, too.

We haven't heard the term "stagflation" for some time, but with rising inflation and the potential for slowing economic growth, it may come back into vogue soon. And under those sorts of macro conditions, investors should consider the benefits of holding stocks that pay strong dividends, but that still offer some hope for generous price appreciation.

Technology companies aren't exactly known for their great dividend payments. They generally invest their profits in new growth opportunities rather than distributing them to shareholders. But that's not universal in the sector, and these three tech leaders offer investors the best of both worlds.

Pen pointing at stock chart

Image source: Getty Images.

Broadcom

One problem facing businesses recently that almost everyone has heard about -- whether they invest or not -- is the semiconductor chip shortage. Insufficient supply is affecting broad swaths of the economy, from automakers to smartphone manufacturers. 

So it might seem odd to put Broadcom (AVGO -0.44%) at the top of a list of tech stocks with growth potential. It's a chip supplier to mobile phone makers, especially Apple, which accounts for 15% of its revenue, but industry innovations and trends speak to how great Broadcom's potential is.

Not only is there an upgrade cycle underway in smartphones, but the rollout of 5G networks is a huge catalyst for both the industry in general and for Broadcom in particular as consumers replace their older mobile devices with models that are compatible with the faster networking standard.

Moreover, Broadcom describes itself as the "leading designer, developer, and global supplier of a broad range of digital and analog semiconductor connectivity solutions that serve the wired infrastructure, wireless communications, enterprise storage, and industrial markets." That's a long-winded way of saying the potential for its data center business is enormous.

Broadcom's dividend of $14.40 per share yields a very respectable 2.9% annually at current share prices, giving shareholders a steady income stream along with the potential for share price gains that should follow as its business expands.

Group of people looking at computer screen

Image source: Getty Images.

IBM

If you haven't taken a close look at IBM (IBM -0.02%) recently, there's a good chance you still think of it as a sclerotic old-time computer company. That's far from the truth. While the tech stalwart's not going to be a barn burner, it will be a steady performer, and its stock is well worth considering.

Its second-quarter report illustrates why. Revenue was up 3% year over year to $18.7 billion, led by its cloud business, which saw revenue rise by 2.5% (after foreign exchange adjustments) to $6.1 billion as its cloud and data platforms saw an 8% leap in revenue.  

Cloud-related sales fully make up one-third of IBM's total, and they also carry its juiciest profit margins at more than 78%. They're a key reason that IBM was able to generate $11 billion in free cash flow over the last 12 months.

There's no question IBM stock hasn't been a stellar performer over the past five years -- heck, even over the past decade -- but the transition it went through as the leadership team figured out what its future would look like was rocky indeed. Since that massive pivot, it has focused on its big data strengths, and it continues to improve by leveraging its expertise with public and private cloud platforms.

The tech giant has steadily increased its quarterly payout, with the result that over the past 10 years, its dividend has doubled in size. At current share prices, IBM yields 4.8% annually.

Police officers wearing body cameras

Image source: Motorola Solutions.

Motorola Solutions

Another entry in the "you wouldn't have guessed" category, Motorola Solutions (MSI -0.61%), is also a very different company than it once was. The Motorola you might remember split in two a decade ago. Its smartphone unit became Motorola Mobility, which was subsequently acquired by Google (now Alphabet) and then by Lenovo. The rest become Motorola Solutions, which is focused on public safety communications. 

Of the three tech stocks discussed here, this one arguably offers the greatest growth potential. Shares are up 37% year to date and are 50% higher over the last 12 months as it continues to innovate beyond police radios and the like. It is now a significant rival to Axon Enterprise (AXON -1.47%) in law enforcement body cameras, in-car video systems, digital evidence management, and cloud-based support that functions seamlessly with its computer-aided dispatch system.

While Axon has dominated the law enforcement market for years, Motorola Solutions is making strategic inroads, and the results are showing up in its financial statements.

Second-quarter revenue jumped 22% from last year as video security sales surged 66% to $306 million. It also recorded its largest single fixed video security order -- a $5 million purchase from a federal government customer. 

Motorola Solutions began making dividend payouts the year after its split from Motorola Mobility, and it has increased them annually. Over the past decade, the quarterly payment has grown from $0.22 per share to $0.71 per share today, for a modest 1.3% annual yield. As its business grows, investors can be comfortably well-assured that both the price of this tech stock and its dividend are likely to keep growing.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Axon Enterprise. The Motley Fool recommends Broadcom Ltd and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Motorola Solutions Stock Quote
Motorola Solutions
MSI
$264.36 (-0.61%) $-1.62
Axon Enterprise Stock Quote
Axon Enterprise
AXON
$181.24 (-1.47%) $-2.70
IBM Stock Quote
IBM
IBM
$146.16 (-0.02%) $0.02
Broadcom Ltd Stock Quote
Broadcom Ltd
AVGO
$519.92 (-0.44%) $-2.29
Alphabet (A shares) Stock Quote
Alphabet (A shares)
GOOGL
$95.20 (-0.89%) $0.85
Apple Stock Quote
Apple
AAPL
$140.57 (-2.53%) $-3.65
Alphabet (C shares) Stock Quote
Alphabet (C shares)
GOOG
$95.49 (-0.79%) $0.76

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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