Many investors associate the tech sector with high-growth stocks. However, the sector is also home to many blue chip stalwarts, which are owned for stability and income instead of aggressive growth. Those resilient stocks generally held up fairly well over the past year as rising interest rates drove investors from growth stocks to value stocks.
I believe investors should still buy some of those higher-yielding blue chip tech stocks in April as elevated inflation, high rates, bank failures, and other macro headwinds continue to rattle the markets. For me, these three reliable stocks check all the right boxes: Broadcom (AVGO 2.02%), Cisco Systems (CSCO 0.37%), and HP (HPQ -0.11%).
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1. Broadcom
Broadcom produces a wide range of chips for the data center, networking, broadband, wireless, storage, and industrial markets. Its top customer is Apple, which accounted for a fifth of its revenue in fiscal 2021 and fiscal 2022 (which ended last October). It also expanded into the infrastructure software market by acquiring CA Technologies in 2018 and Symantec's enterprise security business in 2019. It's currently in the process of buying the cloud software giant VMware.
In fiscal 2022, Broadcom's revenue rose 21%. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 27%, and its free cash flow (FCF) increased 22% to $16.3 billion. Most of that growth was driven by the post-pandemic recoveries of the enterprise, data center, and industrial markets. For fiscal 2023, analysts expect its revenue and adjusted EBITDA to both grow about 7% as it laps that growth cycle -- but those estimates don't account for its planned takeover of VMware yet.
Broadcom has a long history of expanding through acquisitions, but it still spent 44% of its FCF on its dividends over the past 12 months. It's raised its payout annually over the past 13 years, and it currently pays an attractive forward yield of nearly 3%. At 18 times forward earnings, it's still an attractive bargain compared to many other tech stocks.
2. Cisco Systems
Cisco is the world's largest producer of networking switches and routers. It also provides wireless equipment, cybersecurity tools, collaboration software, and other applications. Cisco's revenue and adjusted earnings per share (EPS) rose 3% and 4%, respectively, in fiscal 2022 (which ended last July), but it suffered a severe slowdown in the second half of the year.
That deceleration was mainly caused by supply chain constraints, which temporarily throttled its production of networking hardware. Those headwinds also squeezed its gross margins with higher production and logistics expenses.
But for fiscal 2023, Cisco expects its revenue to rise 9% to 10.5% and for its adjusted EPS to grow 11% to 12% as it overcomes those challenges and satisfies the market's pent-up demand for its products. Those are impressive growth rates for a stock that trades at just 14 times forward earnings.
It also pays a forward dividend yield of 3.1%, and it's raised its payout for 13 consecutive years. It should have plenty of room for future hikes since it only spent 40% of its FCF on its dividends over the past 12 months. It's committed to returning a "minimum of 50%" of its FCF to investors through dividends and buybacks over the long term -- and that confident pledge makes it a rock-solid investment for conservative investors.
3. HP
HP is one of the world's largest producers of PCs and printers. Its consumer-facing business experienced a major growth spurt during the worst of the pandemic as more people upgraded their aging PCs for remote work, online classes, and more demanding video games. They also purchased more printers for DIY projects at home. But after the pandemic lockdowns passed, HP experienced a tough slowdown as those growth engines cooled off.
HP's revenue dipped 1% in fiscal 2022 (which ended last October) as its adjusted EPS -- which was buoyed by big buybacks -- rose 8%. It didn't provide an exact revenue forecast for fiscal 2023, but it expects its adjusted EPS to drop 5% to 16% as the market's demand for new PCs and printers remains sluggish in the post-pandemic market. Analysts expect its revenue and adjusted EPS to decline 12% and 19%, respectively.
That outlook is grim, but HP is also streamlining its business by cutting thousands of jobs, eliminating redundant products, and expanding its subscription-based services. Those efforts could stabilize its growth, and its stock looks dirt cheap at less than 9 times forward earnings.
HP has also raised its dividend annually since it spun off Hewlett-Packard Enterprise in 2015. It spent just 49% of its FCF on dividends over the past 12 months, and it pays a hefty forward dividend yield of 3.8%. Those stable shareholder returns make it a reliable blue chip play for long-term investors.
