If you're looking to give your portfolio a refresh to start the new year, one great way to do so is by adding some dividend-paying tech stocks to it. They offer an unusual combination of income and growth, and better yet, they have an established pattern of outperforming the market. These three in particular look like top stock buys in January.
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1. Microsoft
Microsoft (MSFT -2.45%) is one of the best-performing stocks of all time, and it's easy to see why. It has dominated the enterprise software space for more than a generation and is diversified across multiple product lines in a way that few other tech giants are.
Its major offerings include its popular Office software suite, its Azure cloud infrastructure business, and its Windows operating systems. The company also has strong positions in areas like gaming with the Xbox, social media through LinkedIn, and a wide range of other software businesses such as Github.
Microsoft also enjoys massive competitive advantages as evidenced by its huge operating margins, which came in at 43% in its most recently reported quarter.
The tech giant's dividend isn't going to turn any heads with its yield of 1.2%, but the company has reliably grown its payouts over the past 15 years.
More importantly, Microsoft's fast-growing cloud division and its diversification make it a good bet to ride out today's macroeconomic volatility. While the company is sensitive to changes in business spending, there's little doubt that it would emerge from a potential recession just as strong as it is now and could easily gain market share from weaker software companies. A recession could also set it up to make some relatively cheap acquisitions, which would benefit it over the long term.
2. Taiwan Semiconductor
Taiwan Semiconductor (TSM 2.71%) just got the Warren Buffett stamp of approval as Berkshire Hathaway bought more than $4 billion worth of the chipmaker's stock in the third quarter, and TSMC passes the Buffett test with flying colors.
The company manufactures chips on behalf of tech powerhouses like AMD, Apple, Broadcom, and others, and it has a wide economic moat with a more than 50% share of the semiconductor foundry market.
Taiwan Semi is also a solid dividend payer with a yield of 2.4% at its current share price. Semiconductor stocks sold off sharply in 2022, and TSMC shares fell along with the sector, but the company is more resistant to the cyclical nature of the chip sector than its peers because it's mostly immune to price shifts in chips since it isn't selling them to end users.
The company has also posted strong revenue growth and wide profit margins recently. In Q3 revenue rose 29% year over year to $20.2 billion, and it had a profit margin of 46%.
Demand for semiconductors continues to grow, and TSMC is spending $40 billion on two new manufacturing facilities in Arizona, paving the way for a significant expansion. The stock also looks well priced at the moment at a price-to-earnings (P/E) ratio of 13, making now a great time to buy.
3. Broadcom
Staying within the semiconductor sector, Broadcom (AVGO 2.99%) also presents a good option for investors looking for dividend-paying tech stocks. Broadcom designs chips, but it has avoided the headwinds that have impacted other chipmakers since it doesn't focus on PCs and mobile devices.
Instead, Broadcom makes chips for data centers, wireless routers, modems, and other connectivity devices, as well as local area network infrastructure and fiber optics. Even in a difficult environment for semiconductor stocks, Broadcom has continued to grow its top line.
In its fiscal fourth quarter, which ended Oct. 30, the company reported a 21% revenue increase to $8.93 billion, and its adjusted earnings per share jumped from $7.81 to $10.45. Management foresees that solid growth continuing into 2023 as it called for 16% top-line growth in the first quarter of its fiscal 2023. That forecast indicates that the company isn't suffering as much as many of its peers are from the macroheadwinds.
The stock also has an enviable track record. It's up by 1,700% over the last decade, and at the current share price, its dividend yields 3.4%. Management has increased the dividend rapidly as well and just hiked its payout again by 12%.
If you're looking for a tech stock that offers a combination of growth, income, and recession resistance, it's hard to find a better option than Broadcom.
