Technology stocks may not be the first place investors look for high-yielding dividends, but the bear market of 2022 changed things. Absolutely crushed by fears of a recession, a number of top tech companies now sport lucrative dividend payouts.
And because these companies are still growing, these quarterly payouts have room to increase over time. A rising dividend is a top way investors can beat average market returns over the long term.
With that in mind, Qualcomm (QCOM 0.73%), Skyworks Solutions (SWKS 1.21%), and Texas Instruments (TXN 1.25%) are three tech stocks worth a closer look in October. Here's why.
1. Qualcomm: The mobile chip giant charts a new course
Mobile chip leader Qualcomm returned to growth in the last couple of years thanks to the 5G mobile network upgrade cycle. Each 5G-enabled phone means more chip content per device for Qualcomm.
But this is more than just a smartphone play. Qualcomm is also growing fast in the businesses of automotive and Internet of Things (IoT), which encompasses laptops, wearables, smart home devices, industrial equipment, and the like. The company also has its sights set on disrupting the PC market with its energy-efficient processor designs, as well as the data center industry after acquiring a small start-up called Nuvia early in 2021.
This type of steady growth helped make Qualcomm a top dividend stock. Over the last 10-year stretch alone, the quarterly dividend increased by nearly 190%. As of this writing, the dividend is yielding 2.6% a year. Share repurchases worth $3.4 billion over the last four quarters (currently 2.7% of Qualcomm's market cap) further boost this top chip designer's return of excess cash to shareholders.
Qualcomm anticipates slowing growth for its smartphone business in the years ahead, but fast and enduring expansion for its IoT and automotive business. Some of these newer-end markets have even higher profit margins than smartphones. Simply put, Qualcomm could continue doling out higher dividend payments for years to come thanks to its widening mobile chip portfolio. After tumbling some 40% so far this year, October looks like a great time to buy.
2. Skyworks Solutions: An unloved manufacturer goes on fire sale
Skyworks Solutions is another mobile chip company, competing with Qualcomm in the RF (radio frequency) front-end department. Those are the semiconductors that enable a mobile device to connect to a mobile network or Wi-Fi connection. But unlike Qualcomm, Skyworks is also a manufacturer, operating a handful of fabs around the world to produce the circuits it designs.
Also a boon for Skyworks were 5G upgrades, but that tailwind began to abate this year as consumer spending slowed. However, during the peak of the 5G sales boom over the summer of 2021, Skyworks went shopping. It acquired the infrastructure and automotive semiconductor design segment of Silicon Labs, helping accelerate Skyworks' longtime plan of diversifying away from just phones (and in particular, Apple, which makes up about half of its revenue). Even as phone components lost some steam, this addition helped keep Skyworks in growth mode overall this year.
Even more notable, during its last quarterly earnings update in August, management announced an 11% increase to the quarterly dividend, to $0.62 per share. The stock is down a whopping 48% so far this year, so paired with the dividend hike, Skyworks now yields an impressive 3.1% a year.
The company only initiated its quarterly payout in 2014 (at $0.11 per share per quarter), so its track record of dividend increases is impressive so far. It's also made $807 million in share repurchases in the last year, worth another 6.2% of the current market cap.
Skyworks is currently an unloved, forgotten chipmaker, but patient investors shouldn't overlook this business. Though it's a cyclical manufacturing company, Skyworks has a proven track record of steadily growing over the years and is still early on in its dividend payout journey. Trading at just 14 times trailing-12-month free cash flow, shares look too cheap to ignore this month.
3. Texas Instruments: A master class in profit generation and shareholder returns
When talking about tech dividend stocks, Texas Instruments (TI) provides an ideal template of how management can execute a shareholder return-of-value plan over the long term. The company is proud of this and prints its accomplishments on the front page of its investor relations site.
Since CEO Rich Templeton took charge in 2004, TI's dividend has been raised every year and averaged 25% per-year growth. And thanks to share repurchases, total share count was reduced by 46% over that same span of time, boosting earnings per share for owners of this stock.
In September, Templeton and company announced an 8% quarterly dividend increase and a brand-new $15 billion share repurchase plan (which adds to the $8.2 billion left over on its previous repurchase plan). TI stock currently yields 3.2% a year.
Could TI keep this impressive run going and make it to the Dividend Aristocrats club (companies that have increased their dividend annually for at least 25 years in a row)? It certainly could. The company is another integrated chip designer and manufacturer like Skyworks, and it's been at it for many decades.
TI specializes in industrial, communications, and automotive hardware. The company doesn't focus on the most cutting-edge silicon technology out there, but it participates in markets with steady demand and where it can create a strong moat to stave off competition. It's a strategy that has paid off handsomely, creating steady growth as electronic equipment becomes increasingly ingrained into the global economy.
In particular, the electric vehicle market and other automotive technology advances could be a huge growth driver for TI in the decade ahead. Of course, this won't be the fastest-growing tech business around, and it currently trades for 24 times trailing-12-month free cash flow. This chip stock isn't the cheapest one right now, but it trades for a premium for good reason. If steady, rising dividends are what you're after, look no further than Texas Instruments.
