If someone's headed closer to retirement, it is probably smart for them to assess their portfolio and switch out some riskier stocks for more durable, dependable companies. One way to do this is by finding some higher-yielding dividend stocks, which I identify as stocks with dividend yields above the market average. Currently, the S&P 500 has a dividend yield of 1.24%, which is near the all-time low looking back to 1900. The bar is not high to become a high-yield stock now, and even companies paying out 2% or more of their market cap as dividends are few and far between these days.
Intel Corporation (INTC -1.79%), Texas Instruments (TXN -1.23%), and Cisco Systems (CSCO 0.67%) are three high-yielding tech stocks investors should consider buying in January. Here's why.
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1. Intel Corporation: 2.56% yield
Intel is one of the dominant semiconductor (computer chip) manufacturers worldwide. It used to be the largest in the world back in the '90s and early 2000s but has since given up that crown to Taiwan Semiconductor Manufacturing (TSMC). This company manufactures chips for third parties like Nvidia and Advanced Micro Devices. TSMC has eaten into Intel's business in the last decade and is now ahead of them technologically. However, with new CEO Pat Gelsinger at the helm, Intel is trying to rise to the challenge and regain some of the dominance it lost in semiconductor manufacturing in the past decade-plus.
In 2022, Intel plans on spending $22 billion to $25 billion in capital expenditures, according to its latest quarterly report. This will be up significantly from the $18 billion to $19 billion it spent in 2021 -- we won't know the exact number until the fourth-quarter earnings report comes out. A lot of this spending will go to two new factories in Arizona, which are estimated to cost $20 billion to build. Making capital expenditures is not necessarily a good thing. A company needs to get a good return on that capital investment to provide value to its shareholders.
Luckily for semiconductor companies, the end demand for the products is seeing a huge tailwind that should continue over the next decade-plus. Analysts predict that the industry will grow at a rate of 5% or more through 2030, which will provide a strong demand tailwind if Intel can execute in bringing technologically relevant products to market.
In 2021, management expected Intel to bring in $73.5 billion in revenue and $12.5 billion in free cash flow. It currently has a dividend yield of 2.56% and has raised its dividend almost every year since it instituted the dividend back in 2004. If Intel can continue generating cash while also growing its top line over the next decade, the stock should provide strong total returns for shareholders as well.
2. Texas Instruments: 2.44% yield
Speaking of semiconductors, Texas Instruments is another company in this durable and growing industry that should provide investors with solid returns over the next decade and beyond. Unlike Intel and TSMC, which focus on the fastest and most cutting-edge technology, Texas Instruments provides basic semiconductor chips to the industrial and automotive industries. It has tens of thousands of patents worldwide, which gives it a defensible position and little competition in selling specific semiconductor products.
Texas Instruments' model requires fewer capital expenditures than Intel and TSMC. Over the last 12 months, Texas Instruments has only spent $1.4 billion in capex, allowing a free cash flow of $7.1 billion and a free cash flow margin of 40%. It is returning a lot of this cash flow to shareholders in dividends, with a current yield of 2.44%. Management has grown its dividend per share every year since 2012.
This is not an exciting investment, but with minimal competition in a growing industry with minimal capital requirements, Texas Instruments can provide strong total returns for investors looking for a safer investment in their portfolios.
3. Cisco Systems: 2.44% yield
Cisco Systems used to be a darling of the dot-com bubble, reaching one of the largest market caps in the world back in 1999-2000. It has taken 20 years for the company to regain its stock price from the height of the bubble, but now it is doing so at a much more reasonable valuation.
Cisco's business is widespread, with tons of products. These include networking, the internet of things (IoT), wireless, security, and data center equipment and software that it sells to corporations and small businesses. It has been able to ride the computing and internet tailwind over the past few decades and now does $51 billion in revenue a year and generates around $14 billion in free cash flow. Given its size, Cisco is not expecting to grow rapidly in the coming decades, with revenue growth guidance of only 5% to 7% this fiscal year.
However, as with Intel and Texas Instruments, Cisco pays out a steady dividend that is currently yielding 2.44% a year and has grown its dividend payout every year since 2012. If you think the internet, computing, and all the associated products that come with it will stay in demand, Cisco should generate durable cash flow over the next decade that it can pay to shareholders. This makes it a perfect pick for any retiree looking for growing quarterly income payments.
