Dividend investors often gravitate toward the stocks with the highest yields. However, a stock's yield might only look attractive because its underlying business is grappling with other problems. The company might also be struggling to generate adequate earnings or free cash flow (FCF) growth to support its dividend payments.
So instead of simply focusing on the dividend stocks with the highest yields, investors should seek out companies that offer a balanced blend of value, growth, and income. I believe these three blue chip tech stocks check all the right boxes: Dell Technologies (DELL 1.49%), Broadcom (AVGO -0.73%), and Oracle (ORCL -1.48%).
Let's find out why these three dividend-paying tech stocks are buys in April.
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1. Dell Technologies
Dell became a publicly traded company again in December 2018, nearly six years after its founder and CEO Michael Dell took the company private. It subsequently spun off its 81% stake in the cloud software giant VMware in 2021, and it now generates most of its revenue from PCs, servers, and data storage products.
In fiscal 2024 (which ended this February), Dell's revenue and adjusted EPS fell 14% and 6%, respectively. Its PC business remained soft in a post-pandemic market, while its sluggish sales of data storage products offset its stronger sales of servers.
That slowdown was disappointing, but Dell expects to "return to growth" in fiscal 2025 as the PC market stabilizes, it sells a higher mix of AI-optimized servers, and its storage solutions business catches up the growing server market. Analysts expect its revenue and adjusted EPS to both rise about 6% for the full year.
Over the long term, Dell aims to grow its annual revenue by about 3%-4% and its annual adjusted EPS by at least 8%, and to return at least 80% of its adjusted FCF to its investors through buybacks and dividends. It currently pays a forward yield of 1.6% with a low payout ratio of 34%, and its stock still looks like a bargain at 17 times forward earnings.
2. Broadcom
Broadcom, previously known as Avago Technologies before its takeover of the original Broadcom in 2016, is one of the world's largest chipmakers. It also owns an infrastructure software business, and it expanded that smaller segment to roughly half of its top line by acquiring VMware for $69 billion last November.
Broadcom's revenue and adjusted EPS rose 8% and 12%, respectively, in fiscal 2023 (which ended last October). Most of that growth was driven by the expansion of the AI market, which significantly boosted its sales of data center and networking chips. It expects AI-oriented chips to account for 35% of its total semiconductor revenue in fiscal 2024.
Broadcom also signed a new "multibillion-dollar agreement" to sell its 5G radio frequency chips and other wireless connectivity components to Apple last May. That deal indicates that Apple will remain one of its top customers, even as it develops its own first-party chips to reduce its dependence on third-party chipmakers.
Analysts expect Broadcom's revenue and adjusted EPS to rise 41% and 11%, respectively, in fiscal 2024 as it integrates VMware. Its revenue growth will decelerate after it laps that massive acquisition, but its stock still looks reasonably valued at 28 times forward earnings. It also pays a decent forward yield of 1.6% with a manageable payout ratio of 71%.
3. Oracle
Oracle is one of the world's largest database software companies. It transformed many of its on-site applications into cloud-based services over the past decade, and it expanded its ecosystem with more enterprise resource planning (ERP) and cloud infrastructure services. That cloud-driven transformation helped Oracle stay relevant and continue growing its revenue. It also repatriated a large portion of its overseas cash and bought back nearly 40% of its shares over the past decade.
In fiscal 2023 (which ended last May), Oracle's revenue rose 18% (and 7% on an organic basis) as its adjusted EPS grew 4%. For fiscal 2024, analysts expect its revenue and adjusted EPS to increase by 7% and 9%, respectively.
Oracle plans to continue expanding its cloud services segment, which accounted for 38% of its revenue in its last quarter, to offset the slower growth of its on-premise, licensing, and support divisions. It also expects the rising usage of its back office database and ERP applications, the expansion of its cloud infrastructure platform's generative AI features, and a new AI infrastructure contract with Nvidia to drive its near-term growth.
Oracle will likely profit from the expansion of the AI market, but its stock still looks cheap at 19 times forward earnings. It also pays a forward yield of 1.3%, and its low payout ratio of 42% leaves it plenty of room for future dividend hikes.
