July is the month when Americans celebrate freedom each year. Passive income from dividends can be a powerful tool for investors working toward financial independence.
It might seem counterintuitive to look at the technology sector when you're talking about dividend stocks, but some very fundamentally sound tech stocks can offer generous dividend yields at today's prices.
Here are three names you can consider adding to any long-term dividend portfolio this month.
1. HP
You might be familiar with HP (HPQ 1.33%), which sells computers, printers, supplies, and services for personal and commercial uses. The company's history goes back to the earliest tech days, with its founding in 1939. HP has raised its dividend for 14 consecutive years, and the dividend yield is a solid 3.4%. More importantly, management has hit the accelerator, issuing more aggressive increases in recent years while keeping the dividend payout ratio manageable at 45%.
HPQ Cash Dividend Payout Ratio data by YCharts
Analysts believe HP will grow earnings per share (EPS) by an average of 4% annually over the next three to five years. That growth won't light the world on fire, but HP's stock is reasonably valued at just 9 times earnings, and the anticipated growth is enough to continue supporting solid dividend growth over the coming years.
Key Data Points
2. Cisco Systems
The world is becoming increasingly digital, which could mean big things for a networking solutions company like Cisco Systems (CSCO +1.69%). The company sells hardware, software, and services for creating and operating secure networks. Cisco's dividend yields a solid 3% at today's share prices, and management's raised the payout for 13 consecutive years. You can see below that the company pulled back on dividend growth over the past few years but could reasonably expect more significant increases moving forward. The payout ratio has fallen to just 37%, its lowest in recent memory.
CSCO Cash Dividend Payout Ratio data by YCharts
Those future dividend increases should come with the support of solid earnings growth, which analysts believe will average between 6% and 7% annually over the next three to five years. Additionally, Cisco is transitioning to a recurring revenue model by selling software subscriptions and service contracts. Approximately $23.8 billion of its $55 billion in annual revenue is recurring, which should make its financials more predictable and bode well for its dividend stability. The company's solid growth outlook and recurring sales model arguably justify the stock's current price-to-earnings ratio (P/E) of 14.
NASDAQ: CSCO
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3. International Business Machines
While no longer the technology powerhouse it was in the 1980s and 1990s, International Business Machines (IBM +0.04%) remains very relevant. Its business today focuses on cloud and hybrid computing, software, and consulting. IBM's stock offers investors the highest yield of these three names, roughly 5% at its current share price. Additionally, IBM has the longest dividend growth streak at 28 years of consecutive increases. You might notice that dividend growth has slowed in recent years as the payout ratio increased, but it's begun recovering and the payout ratio is back down to 66%.
IBM Cash Dividend Payout Ratio data by YCharts
Most high-yield dividend stocks don't grow very quickly, but you want to see a dividend at least keep up with inflation. Fortunately, the lower payout ratio gives IBM more flexibility moving forward, and analysts are looking for approximately 4% in annual earnings growth over the coming years.
NYSE: IBM
Key Data Points
The stock trades at 14 times earnings, which seems fair given its conservative growth outlook. IBM has been restructuring to position itself for long-term growth, including hiring a new CEO in 2020, spinning off its infrastructure services business as Kyndryl, and leaning into higher-growth software applications via products like Red Hat and IBM Watson.
