Four High Yielding Tech Plays With Growth Opportunities
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When planning a dividend portfolio, investors want safety. The primary concerns are security of the income stream and preservation of capital. However, sometimes investors want both a great yield and significant potential for future growth.
Tech stocks are generally not known for their high yields. Of those who pay dividends, their growth days are widely thought to be behind them. Microsoft (NASDAQ: MSFT) is a great example of this. Apple (NASDAQ: AAPL) began paying a dividend recently, and there has been a lot of speculation on whether or not Apple can even be considered a growth stock anymore.
There are however, some diamonds in the rough for dividend investors looking for growth. Some of these are household names, some not. My favorites, in order from lowest yield to greatest are:
1.) Intel (NASDAQ: INTC) – The world’s largest manufacture of microprocessors is generally not thought of as much of a growth play, however I beg to differ. With the fact that emerging markets now account for over two thirds of PC demand, the growing middle class of these nations may be just the thing to take Intel’s numbers to the next level. Intel currently trades at only 9.3 times 2012 earnings, and analysts have a 1-year average target of $23.39 on the company. The stock currently yields a 4.6% dividend, so investors are very nicely paid to wait for growth.
2.) Microchip Technology (NASDAQ: MCHP) – This company develops and manufactures specialized chips used in a wide variety of embedded control applications. Analysts believe that the company will outgrow the semiconductor industry, and are projecting sales growth of 13% in 2013, particularly in the 8-bit, 16-bit, and 32-bit micro-controller markets. Microchip Technology is trading at a P/E multiple of 19, which should give investors an idea of the kind of growth projected for the company. Currently, the average analyst price target on the company is $35.14, which would represent a 17.8% upside over current price levels. This type of growth is rare for a company yielding 4.7%.
3.) Lexmark International (NYSE: LXK) – Lexmark is one of the leading manufacturers of laser and inkjet printers. Demand for printers has suffered over the past few years, just ask any Hewlett-Packard shareholder. The company is adapting to this by focusing its efforts on its faster-growing, higher-margin businesses, such as high-end hardware and managed print services. Revenues are expected to decline slightly in 2013 as a result of the slow printer demand, however most analysts agree that the company’s long-term prospects are very favorable. Investors may have to wait for a few years before the next leg up, however in the meantime they will be rewarded with a 5% yield.
4.) Seagate Technology (NASDAQ: STX) – Seagate is one of the world’s largest hard disc drive manufactures. Analysts are worried about the trend toward tablet PC’s, which use solid state drives, but just as with Intel, emerging market PC sales should help future growth. The company is also in the process of developing “hybrid drives” for tablet manufactures as a lower-cost alternative to solid state. Seagate trades at only 6.4 times forward earnings, reflecting the market’s expectation of slowing sales of traditional PC’s and lower prices of traditional hard drives. However, Seagate yields 6%, which makes the wait for their hybrid technology to catch up well worth it.
KWMatt82 owns shares of Apple. The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!