If history is any guide, the best thing you can do with your cash is to buy dividend stocks. Numerous studies underscore the idea that dividend stocks outperform their non-paying brethren by a hefty margin.
Several years ago, J.P. Morgan Asset Management found stocks that initiated and then raised their payouts over a 40-year period between 1972 and 2012 returned an average of 9.5% annually versus just 1.6% for non-dividend-paying stocks. Further, over rolling three-year periods, higher-yielding securities beat low- and non-dividend-paying stocks about two-thirds of the time.
Image source: Getty Images.
The asset managers at Hartford Funds similarly found that dividends contributed 40% to the total return of the benchmark S&P 500 going all the way back to 1930.
While the end of the 13-year-long tech stock bull run in late 2021 left a bad taste in investors' mouths, the following pair of high-yield tech stocks are ones investors should have on their radar for a rebound.
1. Intel
Semiconductor giant Intel (INTC 1.77%) tumbled hard in 2022, losing nearly half its value, and there is a sense of gloom surrounding the stock that's tied to the consumer market. With rampant inflation and rising interest rates, economists and analysts are expecting a recession sometime this year.
Intel is also behind competitors like Taiwan Semiconductor in rolling out the latest-generation chip technologies on the market. Where TSM is producing 3 nanometer (nm) chips, Intel is only rolling out its 7 nm chips. But it has released new chips for the desktop processor market and its new Sapphire Rapids design intended to win back server market share. Intel also has a geographical advantage in that it makes many of its chips here in the U.S., giving it a head start over its rival, which is only just now starting to move facilities here.
Management has maintained that the back half of 2022 was going to be the turning point for the business, and its third-quarter results were stronger than Wall Street expected, even though Intel did cut full-year forecasts in the process. It is now looking for 2022 revenue to be $63.5 billion at the midpoint of its guidance range, down from its prior guidance of $66.5 billion.
Yet all the bad news and expectations have been priced into the stock, and its stock is cheap. At 8 times trailing earnings, 15 times next year's estimates, and 16 times the free cash flow Intel produces, the stock is trading at levels not seen in decades.
It helps explain why Intel's dividend, which it has paid for 30 years, currently yields 5.1% annually. There's no doubt the chipmaker is a riskier play than some others, but the turnaround it has embarked on shows potential as it narrows its focus on some of its core strengths.
2. Broadcom
Broadcom (AVGO 2.99%) is another chipmaker at the other end of the spectrum from Intel in many respects. Broadcom's primary end markets include networking, storage, broadband, and wireless, all of which ought to set the company up for numerous expansion opportunities.
In particular, the ongoing rollout of wireless infrastructure upgrades to support 5G networks should serve as a unique catalyst for expansion for the chipmaker.
Broadcom is already experiencing rapid cash-generating capabilities, leading to some $4.5 billion worth of free cash flow in the fourth quarter, which produced margins of 50% as networking sales surged 30% again to $2.5 billion and represented 35% of its semiconductor revenue.
The chipmaker uses its prodigious cash flows to return value to shareholders, paying out $1.8 billion in dividends in the fourth quarter. Broadcom's annual dividend of $18.40 per share currently yields 3.1%. In addition, it recently raised the payout by 12%, marking the 12th consecutive annual increase since initiating the dividend in 2011.
Broadcom is clearly outperforming many of its industry rivals and is hitting on all cylinders, even if management admits business will cool slightly in the year ahead. While the overall chip industry may be slumping, Broadcom still appears ready to hit the ground running this year.
