Technology has been one of the worst-performing sectors so far this year. This is a complete reversal not only from last year when it was the best-performing sector, but for the past decade and beyond when it was where investors could find the best growth stocks to buy.
Since the end of the Great Recession in 2009, growth tech stocks have been a driving force on Wall Street, as consumer demand for consumer electronics and related products and services caused the sector to far outperform. While much of the gains were driven by Amazon, which soared more than 2,300% during that time frame, even it hasn't been able to escape the industry's downdraft. Amazon's stock is down 20% year to date, and the e-commerce giant doesn't offer one thing that other tech companies do to help offset any loss of capital appreciation: a dividend.
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According to JP Morgan Asset Management, companies that initiated and grew their payouts between 1972 and 2012 returned an average of 9.5% per year over this 40-year period. Meanwhile, non-dividend-paying stocks delivered less-than-stellar annual returns of 1.6% over the same time frame.
Over rolling three-year periods, the higher-yielding securities beat the low- and non-dividend-yielding securities about two-thirds of the time. It's rare that a dividend will completely offset a stock's decline, but the simple fact that a company is continuing to share a percentage of its profits with shareholders should boost investors' confidence and keep them from making rash decisions, such as selling during a short-term panic.
This pair of dividend-paying tech stocks are ripe to be bought in September.
1. Broadcom
The semiconductor industry has been walloped by the global chip shortage as supply chain disruptions cut into chip supplies. Yet chipmaker Broadcom (AVGO +1.22%) has a clear set of competitive advantages that allowed it to hold up better than most. Even though its stock is down 21% in 2022, over the past year it is one of a handful of semiconductor stocks that generated positive returns for investors.
First, as the premier provider of wireless chips for smartphones, Broadcom should benefit from the ongoing upgrade cycle in smartphones over the coming years. The rollout of 5G networks marks the first upgrade to download speeds in a decade, and it should continue driving consumer demand higher.
NASDAQ: AVGO
Key Data Points
Of more immediate value is its presence in the networking and data center market, both of which drove third-quarter performance higher as sales surged 30% and 70%, respectively, in the period (wireless rose a respectable 14% in the quarter).
Broadcom generates significant amounts of free cash flow, or the money that is left over after paying all its bills to grow the business and return value to shareholders. In the third quarter, free cash flow was $4.3 billion, or 51% of revenue, which helped it pay $1.7 billion in dividends in the period. Broadcom's annual dividend of $16.40 per share currently yields 3.1%.
2. AT&T
Telecom giant AT&T (T 1.86%) is another investment that will benefit from the development of 5G networks. Now that it's laser focused on its telecom business again after the spinoff of its Warner Media unit into Warner Bros Discovery, it will be able to target more resources to its primary growth vehicle.
AT&T had been riding high earlier this year as Wall Street realized a leaner telecom was a better stock, but a second-quarter earnings report that downgraded free cash flow guidance by $2 billion caused the stock to disconnect. Turns out that investing in 5G networks costs a lot of money, and a softer economy meant consumers hit hard by inflation were delaying payments. That's still good news for investors, who can buy into AT&T at prices it was at before its rally.
NYSE: T
Key Data Points
AT&T is still adding customers to its mobile phone and fiber communications businesses, even as rival Verizon is losing customers.
The telecom's premier dividend also remains intact. While there was a bit of a hubbub over AT&T slashing the payout in half when it spun off its entertainment division, the dividend of $1.11 per share still yields a lucrative 6.5% annually and is in no danger of being further cut. With great growth prospects still before it, AT&T is a stock to be buying this month.
