Investors are reeling from steep losses in the technology sector so far this year, headlined by the Nasdaq-100 index, which has fallen by more than 31%. That places it firmly in a bear market, and it's the result of a seismic shift in economic conditions.
After two years of near-zero interest rates during the pandemic, the U.S. Federal Reserve finds itself challenged to get the highest rate of inflation in 40 years back under control. The Fed is aggressively raising interest rates to cool prices down to more sustainable levels, but that has sent reverberations through the tech sector.
With the era of "free money" seemingly over, investors are giving loss-making technology companies less runway to pull their business models into profit territory. But with that said, there are plenty of companies generating high growth, and also making money at the same time.
Here are two stocks with that high growth/profitability combination that will also pay you a decent dividend to own them.
1. MKS Instruments: Annual dividend yield of 0.82%
When it comes to technologies with hyper-growth potential, it's hard to look past the semiconductor sector. Advanced computer chips are tasked with powering a growing number of popular electronics, from smartphones to electric vehicles, and some estimates suggest the industry could be worth over $1 trillion annually in the next decade.
MKS Instruments (MKSI -4.71%) is a semiconductor service company that has been in business for over 60 years. It provides critical products and services to the world's largest chipmakers, and it helps them navigate modern production challenges as chips shrink in size, yet still need to deliver more power than ever. MKS Instruments claims it touches virtually every semiconductor produced globally, highlighting its incredible reach.
The company has suffered from supply chain disruptions over the last few quarters, yet it has still managed to generate modest revenue growth. But it has really performed on the profitability front; MKS Instruments has delivered $11.54 in non-GAAP (adjusted) earnings per share in the last 12 months, which was a 36% jump over the prior period.
Its stock is, therefore, very reasonably priced at an earnings multiple of just 9, which is a 64% discount to the Nasdaq-100's multiple of 25. While that implies there could be significant upside, owning stocks that pay a regular dividend can be the real positive factor in this difficult market. MKS Instruments gives investors a quarterly dividend of $0.22 per share, or $0.88 annually, which generates a yield of 0.82%.
While that yield isn't exactly groundbreaking, it's an attractive proposition when combined with the company's discounted stock price.
2. Ally Financial: Annual dividend yield of 3.4%
Ally Financial (ALLY 0.86%) is America's largest digital bank, and it recently added investing great Warren Buffett to its shareholder register. Its dividend yield is far more lucrative than MKS Instruments', which might be one key factor in Buffett's decision to buy in (given his affinity for cash flow).
Ally has grown significantly during the pandemic as consumers shift more of their banking activity online. The company is doing everything possible to capitalize, now serving its 10.5 million customers in 10 different product categories, from basic bank accounts to car loans to mortgages, and even an investing platform. When a customer joins Ally, the goal is to keep them within its ecosystem by serving all of their needs, which can help the bank compete against much larger institutions.
Ally's specialty is car finance, and it has the largest outstanding loan book in America at $107 billion. It's ranked No. 1 in prime lending, No. 1 in dealer floor plan lending, and it also takes the top spot when it comes to dealer satisfaction. But that's not to underestimate the company's other segments like Ally Home, its up-and-coming mortgage division. While still small, its loans held for investment hit a new all-time high of $18.4 billion in the first quarter of 2022, and 37% of its Q1 originations came from existing Ally deposit customers, which highlights the benefits of having a broad ecosystem as mentioned earlier.
Ally Financial has generated $8.54 in non-GAAP earnings per share over the last 12 months, an increase of 53% over the previous period. Like MKS Instruments, Ally stock is also reasonably priced with an earnings multiple of just 4. However, it's worth noting that banks may face a difficult period ahead, with rising interest rates potentially slowing the economy, and therefore, slowing the demand for loans among consumers.
But the company's dividend might be a real draw for investors.
Ally has consistently increased its quarterly dividend over the last five years, and it's now at an all-time high of $0.30 per share. That equates to $1.20 annually, or a return of 3.4%. It's an attractive yield even with interest rates on the rise right now.
