High-yield tech stocks aren’t easy to find. Tech companies are known for delivering growth and therefore tend to spend their profits, if they have any, on growth drivers like research and development, marketing, or expansion.
However, some corners of the tech world do offer appealing yields. Keep reading to see why our contributors recommend a pair of telecoms, AT&T (NYSE: T) and Verizon NYSE: VZ), and gadget-maker Garmin (NASDAQ: GRMN) for investors looking for dividend-paying tech stocks.
It’s a deal
Danny Vena (AT&T): The epic deal that was long in the making has finally been approved: AT&T will acquire Time Warner (NYSE: TWX). The federal judge in charge of the case ruled Tuesday that the merger could go forward, emphatically rejecting the Justice Department’s take on the deal.
The companies originally agreed to the tie-up in October 2016, intending to unite AT&T wireless and pay-television capabilities with Time Warner’s content creation and media lineup. This includes the biggest gem in the deal, highly respected cable channel HBO. The combination of these services will allow the new combined company to better compete in a world where cord-cutting is on the rise and consumers are increasingly turning to streaming services.
The merger gives AT&T a library of its own high-quality content, as well as the ability to deliver it to customers on both static and mobile devices. With DirecTV, AT&T is already the second largest pay-television provider, as well as being the second largest wireless carrier. By adding the world’s largest TV and film studio, it will now control a larger portion of the content as well as the delivery system. AT&T expects to achieve more than $1 billion in cost synergies in the first three years. The company is also planning to roll out 5G to its mobile internet customers later this year, which could boost its subscriber numbers.
The uncertainty concerning the merger and the evolving media landscape has weighed on AT&T’s valuation, which is currently less than 10 times forward earnings estimates. The declining stock price has boosted the company’s dividend yield, currently a whopping 5.8%. However, AT&T recently signaled support for the future of the dividend, boosting the payout by 2% and retaining its status as a Dividend Aristocrat.
While some uncertainty remains, AT&T’s future is finally in its own hands, and investors get a massive yield while the integration plays out.
This company combines a sky-high yield with oodles of potential
Chris Neiger (Verizon): The nation’s largest wireless telecom has plenty to offer dividend investors, beginning with its large yield of 4.95% and its 11 consecutive years of dividend growth. The company rose to the top of wireless services sector by outpacing its competitors with superior connectivity and cutting-edge technology — and it’s gearing up to do the same again.
The next evolution in cellular connectivity is called 5G, and Verizon is getting a head start in the space, much as it did with 4G. The company had previously announced a handful of 5G tests in the U.S. this year, and the telecom giant is aiming for a commercial release of its 5G network in four cities by the end of this year. 5G will not only bring faster and more reliable mobile wireless services, it will also help expand other connectivity services, like vehicle telematics, which Verizon already offers.
The company made it clear that 5G will likely be a big part of its future when it announced earlier this month that its head of technology, Hans Vestberg, would replace Lowell McAdams as CEO in August. Vestberg was in charge of Verizon’s mobile 5G tests, and the promotion indicates that Verizon views this new innovation as a strategic part of its business.
But Verizon has other opportunities beyond 5G. The company purchased AOL in 2015 and Yahoo! last year, so it could expand its business with more content. The two companies are now part of Verizon’s Oath media company, which brought in $1.9 billion in revenue in the most recent quarter. Verizon’s betting that it can not only dominate as a wireless carrier, but as a content provider as well. That may end up being a smart move as the media landscape continues to consolidate.
Verizon’s share price has been on a wild ride over the past year, but income investors should keep the company’s 5G and content opportunities in mind. Verizon is already on the right path to outpace its wireless competitors with 5G, and its new CEO could bring even more focus in the next few months. That’s why investors looking for a high-yield tech stock that’s nowhere near finished evolving should give Verizon strong consideration.
Back from the woods
Jeremy Bowman (Garmin): Garmin may be best associated with GPS devices in the pre-smartphone era. In fact, the stock peaked back in 2007, but the scrappy gadget-maker has reinvented itself, now specializing in devices for activities like fishing, golf, fitness and aviation. Thanks to that diversification, the stock is looking appealing once again.
Garmin operates in five segments — auto, outdoor, fitness, aviation, and marine — and no single category made up more than 25% of revenue in its last year. Sales in the auto division, which is mostly made up of its GPS devices, have steadily declined over the years, but its other categories have grown. Last year, auto contributed just 10% of operating income. That means the company has absorbed the worst of that decline, and its financial performance should steadily improve from here. In the company’s most recent quarter, gross margin increased from 58.1% to 60%, and adjusted earnings per share jumped 31% to $0.68. With operating margins at 20%, the company is considerably profitable, and those margins should expand as it continues to move away from auto.
Shares of Garmin outperformed the S&P 500 over the last year, gaining 18%, and it now offers a dividend yield of 3.4%. The company raised its payout for the first time in three years earlier this year by 4% to $0.53 a quarter, a sign that management is confident in the company’s future growth. With a P/E of just 16.6 and solid growth ahead, Garmin looks like a great portfolio addition for investors looking for dividend-paying tech stocks.
10 stocks we like better than Verizon Communications
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