With the Nasdaq Composite down nearly 14% year to date, many tech-forward businesses are now attractively priced. Markets continue to face uncertainty due to the war in Ukraine, rising inflation, and global supply chain hindrances. But for investors, dollar-cost averaging looks to be a promising strategy, encouraging purchases at these reduced prices.
While dividend payouts are somewhat rare in the technology sector, there are a handful of exciting tech companies currently trading at a sale that also happen to offer dividends and have a track record of increasing their payouts over time. Let's check out three companies that fit this billing and determine if they're poised for long-term outperformance.
Image source: Getty Images.
1. Nasdaq
While Nasdaq (NDAQ +0.18%) is most commonly associated with its self-named index and stock exchange, the financial services company has recently shifted its growth focus toward two key offerings: market technology and investment analytics.
Nasdaq estimates the serviceable addressable markets for market technology and investment analytics to be $9.6 billion and $7 billion, respectively -- 21 times and 34 times each segment's 2021 revenue. The market technology segment, which includes market infrastructure and anti-financial crimes technology, grew fourth-quarter revenue by 24% year over year in 2021 to bring in $131 million. The analytics arm of Nasdaq's investment intelligence unit grew revenue by 17% in the same period, generating $54 million.
Software-as-a-service (SaaS) solutions like Verafin, an anti-financial crime management platform, and eVestment, a market intelligence provider, promise high levels of recurring revenue for Nasdaq. In fact, annualized SaaS revenue reached $640 million in the fourth quarter of 2021, 43% year over year growth. Thanks to the recent acquisition of Verafin, Nasdaq's anti-financial crime unit brought in $72 million in revenue in the fourth quarter of 2021, a 106% year-over-year improvement. Companywide, Nasdaq grew sales by 12% in Q4.
In a world of trillion-dollar market capitalizations (or company price tags), Nasdaq's $30 billion valuation seems too little, especially for a company so integral to today's technological landscape.
NASDAQ: NDAQ
Key Data Points
Trading with a price-to-earnings (P/E) ratio of 26, Nasdaq is close to the S&P 500 index's median P/E while offering a dividend yield of 1.2% and a payout ratio of only 28%.
Even better news for investors: Nasdaq has increased its dividend for nine consecutive years. This, along with the company's growing SaaS business, small market cap, and reasonable valuation, I am happy to dollar-cost average into a long-term holding in the company.
2. ASML Holding
Driven by its purpose "to unlock the potential of people and society by pushing technology to new limits," ASML Holding (ASML 5.43%) is a tech behemoth, sporting a market cap of around $260 billion. Through its mature deep ultraviolet (DUV) lithography products and newer extreme ultraviolet (EUV) lithography, ASML has become a vital component in the semiconductor ecosystem.
NASDAQ: ASML
Key Data Points
The company's lithography technology etches patterns onto layers of silicon wafers, acting as a high-tech paintbrush of sorts. These patterns eventually form the basis for semiconductor chips, which are used in nearly every technological item around us.
Essentially, ASML's improvements to lithography enabled semiconductor companies to benefit from Moore's Law. In 1965, Gordon Moore theorized that the number of transistors on an integrated circuit (a piece of a semiconductor) would be able to double every two or three years. So, why does this matter for ASML and investors?
In a nutshell, ASML's lithography allows for the realization of the exponential gains described by Moore's Law. The 40 billion connected devices we have today are expected to grow to 300 billion by 2030, making ASML's solutions more critical than ever.
What's more, ASML's solutions are largely unmatched. While its older DUV product lines face competition, ASML still has more than 50% of the market. When it comes to its EUV products, ASML holds a near-monopoly.
Thanks to its leadership in the semiconductor industry, ASML grew free cash flow and sales by 173% and 33%, respectively, in 2021.
ASML Free Cash Flow data by YCharts
With this increase in revenue and a significant spike in free cash flow, ASML expects to double its dividend payment to a 1.3% yield. However, despite this increase, the dividend payout will remain around one-third of the nearly $12 billion in free cash flow generated in 2021, enabling future additions and making ASML an extraordinary tech dividend to buy.
3. Teradyne
Responsible for testing nearly 50% of the world's semiconductors, Teradyne (TER 10.51%) has somewhat quietly become a vital component of the semiconductor manufacturing process. Operating in three key testing segments -- semiconductor, system, and wireless -- Teradyne is uniquely positioned to benefit from providing testing equipment in an increasingly complex technological age.
Consider that global semiconductor manufacturing equipment investments rose by 40% to $85 billion in 2021 -- and are expected to hit over $100 billion in 2022. Per those estimates, it is entirely feasible that Teradyne tops 2021's record sales and earnings again this year.
Thanks to its crucial role in testing the components of today's fast-growing and technology-dense landscape, the company has seen its share jump over 500% in the last decade. However, in an extremely tough market for technology growth stocks, Teradyne shares have dropped by one-third over the last three months, now trading at just 20 times free cash flow.
NASDAQ: TER
Key Data Points
Teradyne's testing business grew by 17% year over year in 2021. Its smaller industrial automation segment, which produces the Universal Robots and Mobile Industrial Robots product lines, grew 34% over the same period.
These unique specialties within two growing industries make Teradyne an exciting company. The bonus good news for investors, though, is that the company has increased dividends for seven years straight. While Teradyne's dividend yield is only 0.4%, its payout ratio is a minuscule 7% -- leaving a tremendous opportunity for annual raises down the road.
