- Confusion over the Federal Reserve’s rate outlook, a slowing economy, and elevated inflation will continue to dictate investor sentiment in 2023.
- I remain constructive on technology companies with growing dividend payouts and high free cash flow amid the current market environment.
- As such, I recommend buying shares of Cisco Systems and Qualcomm.
High-quality dividend-paying stocks have been some of the market’s best performers over the past year as they tend to provide investors with a solid income stream, regardless of economic conditions.
Though it is less common, a surprisingly large number of technology companies pay out solid dividends that investors may want to take a closer look at amid the current market climate.
As such, I recommend buying shares of Cisco Systems (NASDAQ:) and Qualcomm (NASDAQ:), given their strong dividend, attractive valuation, and solid fundamentals. Perhaps of greater importance, both tech companies have long histories of dividend hikes, making them attractive plays.
With investors prioritizing profits, I believe these two tech dividend stocks should be winners in the year ahead as market participants seek safer bets for creating wealth.
Cisco Systems
- Market Cap: $196.5 Billion
- Dividend Yield: 3.20%
Cisco, which designs, produces, and sells networking equipment, is one of the best dividend-paying tech stocks to currently own, in my opinion. The networking hardware and software giant has proven over time that it can sustain a slowing economy and still provide investors with higher payouts.
Shares have run hot in recent weeks, with CSCO scoring a gain of almost 24% since reaching a mid-October 52-week low of $38.60, a level that was last seen in November 2020. The stock ended Tuesday’s session at $47.84, earning the San Jose, California-based networking-infrastructure company a valuation of $196.5 billion.
Despite recent volatility, I remain positive on Cisco and expect shares to charge higher in the months ahead, considering its excellent balance sheet, high free cash flows, and a broadly diversified business model which has helped it withstand challenging economic times in the past.
Not only do shares currently yield a market-beating 3.20%, but the tech behemoth has increased its annual dividend for 12 years in a row. In addition to dividends, Cisco has also used share buybacks to return capital to shareholders, a testament to the company’s dependably profitable business and enormous cash pile.
Source: InvestingPro
The next major upside catalyst is expected to arrive when Cisco reports fiscal second-quarter financial results after the U.S. market closes on Wednesday, February 15. Consensus estimates call for the digital communications technology conglomerate to post earnings per share of $0.86, according to Investing.com, increasing 2.8% from EPS of $0.84 in the year-ago period. Fiscal Q2 revenue is forecast to rise 5.4% year-over-year to $13.4 billion.
Highlighting the strength of its underlying business, Cisco has either matched or topped Wall Street’s profit expectations for 37 consecutive quarters dating back to fiscal Q4 2013, while missing revenue estimates only five times in that span.
An InvestingPro survey of analyst earnings revisions points to growing optimism ahead of the earnings release, with analysts raising their EPS estimates 12 times in the last 90 days, compared to six downward revisions. The upward revisions follow a strong earnings result in mid-November that sent shares surging upward.
Not surprisingly, Wall Street has a long-term bullish view on Cisco, as per an Investing.com survey, which revealed that 27 out of 28 analysts covering the stock rated it as either a ‘buy’ or ‘hold’. Among those surveyed, shares had an upside potential of 12.5% from Tuesday’s closing price. Similarly, the average fair value for Cisco’s stock on InvestingPro according to a number of valuation models implies almost 25% upside from the current market value over the next 12 months.
Source: InvestingPro
Qualcomm
- Market Cap: $153.1 Billion
- Dividend Yield: 2.26%
Like Cisco, Qualcomm is another top dividend-paying tech stock with an exceptional track record when it comes to returning capital to shareholders, regardless of economic conditions. That makes it a smart buy amid the current market environment in my view.
Shares have gotten off to a roaring start to 2023, surging over 24% year-to-date to easily outperform the comparable return of the SPDR Technology Select Sector ETF (NYSE:) (+15.3%) over the same timeframe.
QCOM closed at $136.63 last night, within sight of a recent five-month high of about $140 reached on February 1. At its current valuation, Qualcomm has a market cap of $153.1 billion, making it the largest communications equipment supplier in the market.
With an abundant amount of cash on hand, the San Diego, California-based chipmaker has been consistently making efforts to reward its shareholders through higher dividends and stock buybacks.
The semiconductor giant, which designs, manufactures, and sells digital wireless telecommunications equipment and services, has increased its annual dividend payout for 20 consecutive years. At Tuesday’s closing price, shares currently yield 2.26%, which is soundly above the 1.54% implied yield for the index.
Source: InvestingPro
Additionally, Qualcomm’s stock trades at a forward price-to-earnings (P/E) multiple of under 12, which makes it an absolute bargain compared to its major competitors, such as IBM (NYSE:) (70.2 P/E ratio), Hewlett Packard (NYSE:) (24.3 P/E ratio), Broadcom (NASDAQ:) (22.3 P/E ratio), and Texas Instruments (NASDAQ:) (19.2 P/E ratio).
Qualcomm reported better-than-feared last week. Revenue from its key CDMA Technologies (QCT) segment, which includes smartphone chips, radio frequency front-end components, automotive chips, and internet of things (IoT) devices, generated $7.89 billion in sales for the quarter.
Cristiano Amon, President and CEO of the company, said:
“In a challenging environment, we delivered results consistent with guidance, including year-over-year growth in QCT Automotive and IoT. We are confident in our ability to navigate the near term and remain focused on executing our diversification strategy.”
As could be expected, 31 out of 32 analysts surveyed by Investing.com rate QCOM stock either as a ‘buy’ or ‘hold’. Shares have an average analyst price target of around $147, representing an upside of roughly 8% from current levels. Even more promising, the quantitative models in InvestingPro point to a gain of 24.4% in QCOM over the next 12 months, bringing shares closer to their fair value of $169.91.
Source: InvestingPro
Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
