Dividends, Valuation, and Growth: The Perfect Combination
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Some investors look for growth in their investments. Others look for value. While those are both good, other investors are looking for cash. After all, "cash is king." Now, imagine if there were companies that offer all 3. Well, I've found a few that may spark your interest.
The beauty of cash
Apple (NASDAQ: AAPL) is well aware of how powerful cash is. But surprisingly, it is not at the head of the tech industry in this regard. Microsoft (NASDAQ: MSFT) holds that position, but by no means is Apple struggling.
Apple plans to build a 2.8 million square foot, four-story, circular "spaceship" as its new headquarters. The incredible part is it could pay cash for it and only use 13% of what it has on the balance sheet. The company currently sits on approximately $39.1 billion of cash.
Surprisingly, Microsoft has a mountain of cash worth $74.5 billion - nearly double that of Apple. Intel (NASDAQ: INTC) doesn't hold as much cash as either, but with over $10 billion, it is certainly in good shape. So where does the cash go? Some of it goes to dividends.
Quite frankly, Apple doesn't have much of a history. The company has only issued dividends for two years, with one increase. But this could be a perfect example of a company with a short dividend history and a bright future.
Intel and Microsoft have a much longer more predictable history of dividends. In fact, both companies have increased their dividend payouts for ten consecutive years. That's a track record worth watching.
Cash per share
The graph below shows how these three companies compare to some of the other major tech companies.
It might be worth noting that neither Google nor Amazon currently offer dividends. And while this may change in the future, for now, Intel, Microsoft, and Apple are the only three on this chart that payout cash.
Apple and Microsoft have dividend yields of 2.5% and 2.6%, respectively. Apple's dividend yield will likely soar in the next 18 months as it plans to release $100 billion to its shareholders by 2015.
Intel, however, steals the blue ribbon in this area. With a dividend yield approximately 1% higher than both Microsoft and Apple, its clear why tech dividend lovers may fall for this company.
A lot of dividend stocks won't provide much value for investors, let alone growth. Relax, this is not the case with these 3 tech giants.
Growth and valuation
Intel, Microsoft, and Apple all have different valuations, and some are surprisingly good--for instance, free cash flow yields are 8.0%, 9.6%, and 10.9%, respectively. While Apple clearly wins this category, it may not be able to continue to grow at the same clip it has in the past. So you could expect its stock to remain around $450 for quite some time.
Apple, Intel, and Microsoft show an earnings yield of 9.7%, 8%, and 5.5%, respectively. Despite Microsoft and Intel offering impressive valuations, Apple again wins in this area.
When comparing these three companies, Intel wins in regards to dividends, while Apple is clearly a better buy. But Microsoft has outperformed its peers so far this year. Year to date, its stock has grown the most as the chart below clearly shows.
We all know Apple's stock has fallen the past year or so. And while Intel and Microsoft don't measure up to Apple's valuation, their stocks have been growing rapidly. All of these companies offer a nice combination of dividends, value, and growth.
Foolish bottom line
Microsoft is a stock that has become known for its dividend. Its shareholders consistently see dividends increase, while the company maintains a large amount of cash and a rising share price. Apple doesn't have much of a history with dividends, but that is about to change. Intel sports a high dividend yield, a solid valuation, and a growing business. Ultimately, none of them should disappoint.
When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.
Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of 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!