The past few months have been brutal for growth-oriented tech investors, as inflation, rising interest rates, and the Russia-Ukraine war all sparked an exodus from riskier assets. However, investors who mainly held mature tech stocks with high dividends were largely spared from that ugly sell-off.
Those defensive tech stocks should remain resilient in this challenging market, and many of them still trade at bargain bin valuations. Let's examine three blue-chip stalwarts that are worth buying in March: Verizon (VZ -0.53%), Cisco Systems (CSCO 0.06%), and HP (HPQ 1.55%).
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1. Verizon
Verizon remains a more stable investment than its rival AT&T, mainly because it didn't pursue massive, debt-fueled acquisitions to expand its media portfolio and streaming video services. So as AT&T scrambles to spin off WarnerMedia and streamline its business, Verizon continues to generate slow but steady growth from its wireless and wireline businesses.
Verizon's operating revenue rose 4% to $133.6 billion in 2021, while its adjusted earnings per share (EPS) increased 10%. Analysts expect its operating revenue and adjusted earnings to both grow 2% in 2022.
Verizon remains the largest wireless provider in the U.S., and it ended 2021 with 142.8 million retail wireless connections. Its free cash flow (FCF) dipped 18% to $19.3 billion in 2021 as it ramped up its 5G investments, but that still easily covered its $10.4 billion in dividends paid out during the year.
Verizon pays a forward dividend yield of 4.8% and its stock trades at just 10 times forward earnings. That high yield and low valuation should limit its downside potential and make it a solid investment in this volatile market -- which clearly favors boring value stocks over exciting growth plays.
2. Cisco Systems
Cisco is the world's largest supplier of networking switches and routers. That's a heavily commoditized market, but Cisco also bundles cybersecurity software and other services with its hardware. It also consistently acquires smaller companies to increase the stickiness of that ecosystem with new services.
During Cisco's investor day presentation last September, it predicted its revenue and adjusted EPS would grow at a compound annual growth rate (CAGR) of 5%-7% between fiscal 2021 and 2025. That would represent a significant acceleration from its CAGR of 1.5% from fiscal 2017 and 2021.
Cisco expects to achieve that acceleration by locking more customers into its subscription-based services and expanding its higher-growth cybersecurity, agile networks, hybrid work, optimized applications, optical upgrades, and Internet of Things (IoT) business. It also plans to consistently return at least half its FCF to investors through big buybacks and dividends.
Cisco spent 45% of its FCF on dividends over the past 12 months, and it pays a forward dividend yield of 2.8%. Its low forward price-to-earnings ratio of 16 should also make it attractive to value-seeking investors.
3. HP
HP is one of the world's largest producers of PCs and printers. Its consumer-facing business experienced a major growth spurt during the pandemic as more people worked from home, but those tailwinds faded as the lockdown measures were eased and more people returned to work.
However, the growth of HP's commercial-facing PC business partly offset the deceleration of its consumer business as more businesses reopened. That shift prevented the company from suffering a severe post-lockdown slowdown.
Analysts expect HP's revenue and earnings to rise 4% and 13%, respectively, this year. Its stable sales of PCs should offset its slower sales of printers across both the commercial and consumer segments.
HP pays a forward yield of 2.8%, and it spent just 15% of its FCF on dividend payments over the past 12 months -- which gives it plenty of room for future hikes. HP generally spends a lot more of its FCF on buybacks, which enabled it to reduce its number of outstanding shares by a whopping 37% over the past five years. That's why HP's stock still looks dirt cheap at eight times forward earnings -- even though its price has risen 20% over the past 12 months.
