The past two years weren't kind to dividend-paying tech stocks. Rising interest rates drove many investors from tech stocks toward more conservative sectors, while rising yields for fixed-income investments made dividend stocks a lot less appealing.
Yet, there are still plenty of blue-chip tech stocks that are cheap, pay high dividends, and are poised to bounce back in a healthier market. I believe these three tech stocks -- Cisco Systems (CSCO -0.50%), IBM (IBM -1.05%), and HP (HPQ -0.46%) -- are still great income investments for investors who can tune out the near-term noise.
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1. Cisco Systems
Cisco, the world's largest networking hardware and software company, recently disappointed investors by slashing its full-year guidance. For fiscal 2024, which ends next July, it expects its revenue to drop 4% to 6% as its adjusted EPS stays nearly flat.
That was well below its original forecast for 0% to 2% revenue growth and 3% to 5% adjusted EPS growth. It dramatically lowered its outlook because the macro headwinds were driving many of its customers to install their purchased networking hardware at slower-than-expected rates.
During Cisco's latest conference call, CEO Chuck Robbins estimated there were still "one quarter to two quarters worth of shipped orders in customers' hands" waiting to be deployed. That unexpected slowdown cast a dark cloud over the company's long-term goal of growing its revenue and adjusted EPS at a compound annual growth rate (CAGR) of 5% to 7% from fiscal 2021 through fiscal 2025.
But Robbins believes this slowdown is "temporary," and its planned takeover of Splunk (SPLK) -- which will expand its smaller observability software segment next year -- could still help it achieve its long-term targets. Its forward multiple of 12 and high forward yield of 3.3% should also limit its downside potential until its core business stabilizes. Cisco's upside potential might be limited over the next few quarters, but it's a safe place to park your cash in this turbulent market.
2. IBM
For years, IBM struggled to grow as the softness of its IT services and on-site software offset the stronger growth of its cloud-based services. But in 2020, the tech giant shifted gears after its cloud chief, Arvind Krishna, took the helm as its CEO.
Under Krishna, IBM divested its slow-growth managed infrastructure services unit as Kyndryl (KD -3.23%) in late 2021, which freed up more resources for the expansion of its higher-growth hybrid cloud and artificial intelligence (AI) businesses. That growth was driven by Red Hat, the open-source software giant that IBM acquired in 2019.
IBM's growth decelerated throughout 2022 and the first half of 2023 as the macroeconomic headwinds drove companies to rein in their spending. But in the third quarter, its revenue growth accelerated again -- thanks to the stable growth of its software and consulting segments and the gradual stabilization of its infrastructure business.
Analysts now expect IBM's revenue and adjusted EPS to rise 2% and 4%, respectively, in 2023. Those growth rates might seem anemic, but they're a vast improvement from previous years of declining revenue and profits.
The bulls have gradually warmed up to IBM again over the past year, but it's still cheap at 16 times forward earnings and pays a generous forward yield of 4.3%. That low valuation and high yield should make it a great safe haven play.
3. HP
HP's revenue has declined year over year for six consecutive quarters. Its sales of consumer PCs tumbled in a post-pandemic market, and that slowdown was exacerbated by the macro headwinds for its commercial PCs. Its printing business also faced similar headwinds in the consumer and commercial markets.
However, HP's personal systems (PC) revenue actually rose sequentially over the past two quarters as the market gradually stabilized. Its printing revenue also grew sequentially last quarter as it sold more expensive printers and expanded its subscription-based Instant Ink service to offset its slower shipments. Those sequential improvements strongly suggest the company has finally reached the trough of its cyclical downturn.
HP's revenue and adjusted EPS fell 15% and 18%, respectively, in fiscal 2023 (which ended on Oct. 31). However, for fiscal 2024, analysts expect its revenue and adjusted EPS to rise 2% and 5%, respectively, as the PC market stabilizes.
It also continues to execute its "Future Ready Transformation Plan" -- which aims to lay off 7% to 10% of its workforce by the end of fiscal 2025, streamline its PC portfolio with fewer unique models, develop new products for the higher-growth hybrid work, gaming, industrial graphics, and 3D printing markets, and lock in its customers with more subscription-based services.
HP's stock won't blast off anytime soon, but it's dirt cheap at 8 times forward earnings and pays a high forward yield of 3.9%. Therefore, I believe it's still an easy stock to buy and hold for patient income-oriented investors.
