September is often considered the worst month for buying stocks, mainly due to a mix of seasonal investing behavior and institutional selling. Tech stocks could also remain out of favor this month as high interest rates drive investors toward more conservative investments, while dividend stocks will remain unappealing as long as interest rates stay elevated.
That said, those near-term headwinds will eventually dissipate -- so it might be a great idea for patient investors to load up on dividend-paying tech stocks as the bulls look the other way. If you can tune out all of that near-term noise about the so-called "September effect," adding Texas Instruments (TXN 1.27%), Broadcom (AVGO 3.84%), and Qualcomm (QCOM 1.45%) to your portfolio could provide a great blend of long-term growth and reliable income.
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1. Texas Instruments
Texas Instruments produces analog and embedded chips for the automotive, industrial, personal electronics, communication infrastructure, and enterprise systems markets. Its chips aren't as powerful as CPUs or GPUs, but they're just as essential for handling power management and wireless features.
TI isn't a high-growth company, but it's generated a total return of more than 960% over the past two decades, and it repurchased nearly half its shares. It's also raised its dividend annually for 19 consecutive years and pays a healthy forward yield of 2.9%.
TI's stock has stayed nearly flat this year as investors fretted over the cyclical slowdown of the broader semiconductor market and the capital-intensive expansion of its 300mm plants. That's why analysts expect its revenue and earnings to decline 10% and 22%, respectively, this year.
However, TI's revenue growth will likely accelerate again as the macro environment improves, and its transition from 200mm to 300mm wafers should reduce the long-term costs of its unpackaged parts by roughly 40% and significantly boost its gross margins. After clearing that speed bump, analysts expect its revenue and earnings to both rise 7% in 2024.
TI might not seem like a bargain at 24 times forward earnings, but its diversification, scale, and shareholder-friendly strategies all justify that slight premium. Those strengths make it a reliable income-generating stock for this volatile market.
2. Broadcom
Like TI, Broadcom produces power management and wireless chips for a wide range of markets. But it also built an infrastructure software business through its acquisitions of CA Technologies in 2018 and Symantec's enterprise security division in 2019, and it's in the process of acquiring the cloud software giant VMware.
After that acquisition closes, Broadcom will generate about half of its revenue from its software products. That diversification will reduce its exposure to the cyclical semiconductor market and its dependence on Apple, which accounted for a fifth of its total revenue in fiscal 2022 (ended last October).
Avago, which was formed in 2005, bought the original Broadcom and assumed its brand in 2016. Over the past seven years, it generated a total return of 790%. It also raised its dividend every year after the takeover and pays a forward yield of 2.1%.
Broadcom also faces a near-term slowdown as the semiconductor market cools off, but analysts still expect its revenue and earnings to grow 8% and 11%, respectively, this year. It expects its software sales to hold steady as the rapid expansion of the AI market boosts its sales of data center and infrastructure chips.
Broadcom's stock still looks reasonably valued at 20 times forward earnings, and it will likely evolve into a unique semiconductor and infrastructure software superpower after it closes its takeover of VMware. Therefore, it could be a great idea to buy Broadcom before it overcomes its near-term headwinds and seals that massive $61 billion deal.
3. Qualcomm
Qualcomm, one of the world's leading producers of mobile system on chips (SoCs), struggled over the past year as the 5G upgrade cycle cooled off. It also faced intense competition from MediaTek in the low- to mid-range smartphone market, and it's bracing for its loss of Apple -- which accounted for over 10% of its revenue in fiscal 2022 (ended last September) -- as the iPhone maker starts to use its own modems.
That's why many bulls are abandoning Qualcomm even though it's generated an impressive total return of nearly 850% over the past two decades. It also repurchased nearly 30% of its shares during that period and raised its dividend annually for 21 consecutive years. It currently pays a forward yield of 2.8% and looks historically cheap at 12 times forward earnings.
Analysts expect Qualcomm's revenue and earnings to decline 19% and 34%, respectively, in fiscal 2023 as the smartphone market remains weak. But next year, its revenue and earnings are expected to grow 5% and 10%, respectively, as the macro environment improves, new smartphones hit the market, and it expands its faster-growing automotive and Internet of Things (IoT) chip businesses. It might be a good idea to pick up some shares of Qualcomm before that recovery happens.
