Over the past year, rising interest rates made dividend stocks a lot less appealing than fixed-income investments like CDs and bonds. They also broadly drove investors from tech stocks toward more conservative sectors. Therefore, it might seem like a bad time to buy dividend-paying tech stocks as long as interest rates stay elevated.
However, investors who can tune out the near-term noise and plan to hold their stocks for at least a few years can easily find a few undervalued and underappreciated dividend plays across the tech sector. I personally believe these three dividend stocks check the right boxes: AT&T (T 1.02%), Opera (OPRA -1.91%), and Cisco Systems (CSCO -0.50%). Let's find out a bit more about these three dividend-paying tech stocks.
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1. AT&T
AT&T's stock price sank more than 20% this year for three reasons. First, it only added 326,000 postpaid phone subscribers in the second quarter of 2023, which ended a 12-quarter streak of gaining at least 400,000 postpaid phone net adds.
Second, its business wireline segment continued to wither as the market's demand for its legacy voice and data services dried up. Lastly, its critics claimed it intentionally ignored the safety and environmental hazards of its lead-sheathed copper cables -- and that it might need to spend billions of dollars to replace those legacy cables in the near future.
That's a lot of bad news to process, but AT&T's mobility revenue and margins are still rising as it monetizes its subscribers more aggressively with higher-margin plans and international roaming charges. It also continues to expand its fiber business to offset the declines of its non-fiber broadband businesses. Furthermore, it reiterated its goal of generating $16 billion in free cash flow (FCF) this year -- which means it can easily cover its dividends, which consumed $10 billion of its FCF last year.
In other words, AT&T's massive forward dividend yield of 7.6% is still safe, and its low forward multiple of six should limit its downside potential in this challenging market. Analysts expect its revenue to rise less than 1% this year as its adjusted EPS drops 6%, but its prospects could brighten as the macro situation improves and the smartphone market stabilizes.
2. Opera Limited
Opera's web browser controls less than 3% of the global market, according to StatCounter, putting it in fifth place behind Alphabet's Google Chrome (63%), Apple's Safari (21%), and Microsoft's Edge (5%), and Mozilla's Firefox (3%).
However, this oft-overlooked underdog still served 316 million monthly active users (MAUs) across its namesake news app and web, mobile, and gaming browsers at the end of the second quarter of 2023. It's also aggressively monetizing those MAUs with new search and advertising features, and it expects its recent rollout of Opera One -- a new version of its browser with integrated AI features -- to further boost its revenue per MAU.
In 2022, Opera's revenue rose 32% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged 135%. It also turned profitable on a generally accepted accounting principles (GAAP) basis. For the current year, it expects its revenue to rise 15% to 18% and for its adjusted EBITDA to grow 18% to 23%.
Opera's growth is cooling off amid the recent macro headwinds for the ad industry, yet it still generated enough cash to pay its first semi-annual dividend of $0.40 per ADS at the end of June -- which gives it an impressive forward dividend yield of 5.4%. With an enterprise value of $1.2 billion, Opera's stock trades at just 3 times this year's sales and 15 times its adjusted EBITDA -- so it certainly looks like an undervalued income play right now.
3. Cisco Systems
Cisco suffered a slowdown throughout fiscal 2022 (which ended on July 30) as the supply chain constraints throttled its sales of switches, routers, and wireless hardware. Higher logistics and component costs also squeezed its gross margins.
However, most of those headwinds dissipated in fiscal 2023. Cisco's growth accelerated again as it met the market's pent-up demand for new networking hardware devices, and that recovery easily offset the sluggish sales of its cybersecurity and collaboration products. As a result, its revenue and adjusted EPS rose 11% and 16%, respectively, for the full year.
For fiscal 2024, Cisco expects its revenue to rise 0% to 2% as its adjusted earnings per share (EPS) rises 3% to 5%. That slowdown was mainly caused by tough comparisons against its brisk recovery throughout fiscal 2023 instead of any near-term macro or micro challenges.
Cisco pays a forward dividend yield of 2.7% and trades at just 14 times forward earnings. It won't blast off anytime soon, but its respectable yield and low valuation could make it a great safe haven play in this volatile market.
