While the age-old concept of dividends and the modern connotations of tech stocks don’t seem to mix, these two lucrative areas of investing are not mutually exclusive.
To illustrate that point, we asked three top Motley Fool contributors to each choose a high-yield tech stock they think investors should consider buying today. Read on to learn why they like Corning (NYSE: GLW), Garmin (NASDAQ: GRMN), and Lenovo Group (NASDAQOTH: LNVGY)(NASDAQOTH: LNVGF).
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This dividend will only continue to grow
Steve Symington (Corning): With shares of Corning up around 15% since the start of June, bargain hunters might be understandably tempted to avoid buying the glass technologist now. But considering the stock roared higher partly based on the promise of its newly unveiled four-year strategic growth framework, that rise could be just the latest extension of a much longer-term trend.
For perspective, Corning’s new growth framework includes plans to increase revenue 6% to 8% each year, grow earnings per share by 12% to 15% annually, and return $8 billion to $10 billion to shareholders through dividends (which will increase by at least 10% per year) and stock repurchases between now and 2023. In fact, the company began to fulfill the latter pledge on Wednesday by reaffirming its $0.20 per-share quarterly dividend, which yields around 2.4% annually as of this writing, and approving a new $5 billion repurchase plan.
Of course, those generous capital returns wouldn’t be possible if Corning didn’t already boast an enviable stable of cash-generating businesses. To that end, Corning expects demand from 5G rollouts and hyperscale data centers to help its core optical-communications segment grow twice as fast as the broader industry.
Demand for its gasoline particulate filter products should be stoked, as well, by tightening emissions standards worldwide, leading to Corning’s target for automotive market sales to double by 2023. Corning’s massively popular Gorilla Glass products should further drive growth from its specialty materials segment as it finds its way into an ever-larger slate of mobile consumer electronic devices. And that’s in addition to its life sciences product lines, which should benefit from new cell- and gene-therapy research. Meanwhile, Corning aims to hold sales and profits steady at its second-largest segment, display technologies, with new manufacturing capacity and sustained demand from larger televisions.
That’s not to say there won’t be pullbacks along the way. But for investors willing to buy now and reinvest Corning’s healthy dividend as its growth framework plays out, I think the stock is as solid a high-yield bet as our market has to offer.
Find your way to income
Demitri Kalogeropoulos (Garmin): The consumer-tech industry is a tough business — which is why it pays to have a diverse product portfolio and a knack for innovation. Garmin fits that bill perfectly, with earnings coming from its GPS devices like smartwatches and fitness trackers but also from high-margin aviation and marine navigation products. That wide-net approach has helped the company post higher sales and increased profitability in each of the last three years, while rivals like Fitbit have floundered.
Dividend investors will be attracted to Garmin’s nearly 3% yield, but keep in mind that its track record is spotty here as executives skipped annual payout boosts in 2016 and 2017.
Investors might see a significant shift in Garmin’s 2019 outlook following its second-quarter report in late July. The device maker beat its targets to start the year but left its predictions unchanged, since so much of the year was still to come. With Garmin’s holiday season lineup now established and another few months of demand data to review, CEO Cliff Pemble might treat shareholders to a third-consecutive year of outlook hikes for the all-important third and fourth quarters.
The world’s top PC maker
Leo Sun (Lenovo): Lenovo reclaimed its title as the world’s top PC maker from HP last year after it took over Fujitsu’s PC unit. Its total shipments rose 7% annually in 2018, as its market share grew from 20.8% to 22.5%, according to Gartner.
Lenovo’s revenue rose 13%, to $51 billion in 2018, thanks to the stabilization of the PC market and robust demand for its data center products. It also posted a net profit of $597 million, compared to a loss of $189 million in 2017. That bottom-line growth was attributed to the robust growth of its Internet of Things (IoT) devices, a clearance of excess inventory from its mobile unit (which includes Motorola Mobility), and the stabilization of its PC business.
Analysts currently expect Lenovo’s revenue to rise 5% this year and for its earnings per share to grow 20% — which are solid growth rates for a stock that trades at about 13 times this year’s earnings (in HKD terms). The ADR shares also pay a generous forward yield of nearly 7%.
Lenovo still faces several near-term headwinds, including Intel‘s chip shortage (which is throttling its production of PCs), tariffs on Chinese goods, and a distrust of Chinese tech companies, in general — which could impact the Beijing-based tech giant’s reputation. However, Lenovo’s low valuation and high yield should set a floor under the stock, and it remains a solid long-term income investment.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Leo Sun owns shares of HP. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool owns shares of Intel and has the following options: short September 2019 $50 calls on Intel. The Motley Fool recommends Corning and Gartner. The Motley Fool has a disclosure policy.