The technology sector isn't typically known for high dividends, but for growth. But profitable tech stocks that do pay dividends often have a history of growing those payouts handsomely for years and years.
For instance, chip giant Texas Instruments (TXN 1.27%) began paying a dividend back in 2004. While the initial payout was small, TI has grown that dividend at a 25% annualized rate for 20 years, making its current dividend 58 times higher than those initial payouts!
Like TI back in 2004, a few major tech stocks just initiated dividends in the last few years, making it potentially a great time to pick up shares of those stocks. Each of the following tech names have lots of potential growth across artificial intelligence (AI) and 5G, so look for these payouts to rise in the years ahead.
Micron
Memory and storage chipmaker Micron (MU 2.92%) initiated a dividend back in late 2021, as the company was riding a pandemic wave of high demand, and had achieved technological superiority over competitors.
Oopsie! As it turned out, Micron was on the brink of one of the worst memory downturns ever, as the post-pandemic economy and fastest-ever interest rate increases led to a huge drop-off in demand in 2022 and 2023.
But even though Micron's profitability fell into the red, over the past 18 months, the company still decided to raise its dividend by 15% in 2022, good for a 0.52% yield at today's prices.
Needless to say, the memory players have learned their lesson. Over the course of the past year, major memory companies have cut production 25%-30%, and demand is now growing again to catch up with supply. Memory prices are now rising, with research firm Trendforce predicting 13%-18% price increases for DRAM and 15%-20% price increases for NAND flash this quarter alone. Moreover, the research firm even thinks prices could continue rallying through the fourth quarter of 2024 if suppliers stick to their newfound discipline.
DRAM memory could especially be in for a sustained rally, as high-bandwidth memory DRAM, or HBM, is now a hot commodity as a key bottleneck for AI systems.
Micron was a bit late to the HBM game, but it's now shipping its new HBM3E product that boasts 10% better performance and 30% lower power consumption than the next-best solution on the market. That's thanks to Micron's technology leadership it achieved over the past few years under CEO Sanjay Mehrotra. As a result of its technological prowess, Micron and other analysts believe it will get a large allocation to Nvidia's GH200 superchip platforms in the first half of this year.
While Micron's stock has already rallied well off its lows, it's still below its all-time high from early 2022. If investors wait for Micron to actually begin minting profits and increasing its dividend payout, the stock will likely be higher by then.
Image source: Getty Images.
T-Mobile
Investors had a somewhat muted reaction to T-Mobile's (TMUS -0.06%) latest earnings report, but it's difficult to understand why. After all, despite taking market share in recent years, T-Mobile still managed to trounce analyst expectations for postpaid phone net subscriber gains with 934,000 in the fourth quarter. That was way ahead of estimates of 874,000, and well above the 526,000 for AT&T and 449,000 for Verizon.
Investors may have initially seen a "miss" on earnings per share, but that was due to some non-core items. T-Mobile was able to take some accelerated depreciation on existing assets, which is a non-cash accounting charge, and the company continued to pay some severance for the restructuring and layoffs it executed late last summer. There are also some remaining integration charges stemming from the 2020 acquisition of Sprint.
None of those costs are permanent or really core to the business. But what is important for investors is adjusted free cash flow, and management just guided for 22% free cash flow growth in 2024 to a range between $16.3 billion and $16.9 billion.
But 2024 free cash flow is likely to be much better than that. T-Mobile typically guides conservatively, and that guidance also didn't count any phone lease securitizations that T-Mobile typically sells to outside investors.
But T-Mobile pretty much always monetizes equipment leases through securitizations every quarter. In fact, T-Mobile has monetized just over $4.8 billion in securitizations in each of the past two years.
So one could likely expect much higher cash flow in 2024, probably between $18 billion and $20 billion. Given T-Mobile's $193 billion market cap, the stock is still only trading around 10 times this year's likely free cash flow. Given its industry-leading growth and lead in 5G, its stock still looks cheap. And the company's 1.6% dividend, which it just initiated late last year, seems set to grow by double-digits well into he future.
Image source: Getty Images.
Intel
Intel (INTC -9.20%) has had a difficult five years or so, and the stock pulled back after its recent earnings report. In fact, earlier this year, the company cut its dividend to just $0.50 annually, from $1.46. However, even that reduced payout is good for a 1.15% yield at today's depressed stock price.
Intel was of course trying to conserve cash to execute its ongoing turnaround. Up until the recent earnings report, that seemed to be going well. In fact, even in the fourth quarter, Intel's revenue and adjusted (non-GAAP) earnings per share came in handily ahead of analyst estimates.
The problem was guidance, which came in at revenue of just $12.7 billion at the midpoint, well below consensus of $14.2 billion. That led to an 11.9% decline in the share price last Friday.
But the concern may be overblown. According to management, much of the shortfall is due to known declines in Intel's Mobileye unit, which also has publicly traded shares and had already pre-announced a huge 50% sequential revenue decline earlier this month because of customer inventory corrections. Moreover, Intel also noted its PSG programmable chip business would be down, as that portion of the semiconductor market is also known to be in a correction.
However, for Intel's most important "core" units, including PC client and data center chips, all seems to be OK. CEO Pat Gelsinger noted no market share loss in these key areas, which would be a concern.
Importantly, Intel's technological roadmap appears still be on track, as the chip giant is looking to achieve five nodes in four years and catch up with tech leader Taiwan Semiconductor Manufacturing. Moreover, Intel's new Gaudi 3 AI processor is on track for production this year. Encouragingly, Gelsinger noted the demand pipeline for Gaudi expanded by double-digits sequentially last quarter to well over the $2 billion figure given on the prior quarter's call.
Make no mistake, Intel still has a long way to go in its turnaround. Even for 2024, management forecast free cash flow at just breakeven.
But that's up from an $11.8 billion cash burn in fiscal 2023 -- a huge improvement. And the sell-off on weak guidance appears to be due to less-important parts of Intel's portfolio. If Gelsinger & company continue to get the big things right on CPUs and AI accelerators, this could be an opportunity for aggressive investors to pick up shares of this turnaround story on the cheap.
