3 Technology Stocks With Yields Over 3% You Can Buy Today

Investors often think of the technology sector as a high-growth area. With good reason, as some of the largest companies in the world are based in this area. The downside to such high growth is that investors are often willing to pay multiples of the premium, but often rush to exit at the first sign of trouble. Aside from healthcare, no sector has had a tougher 2022 than technology stocks, which are down about 42% year-to-date (YTD).

The upside to the downturn is that there are quality technology stocks that are now trading at much more reasonable valuations. These stocks also offer significant income levels coupled with strong total return potential, which should appeal to both value and dividend growth investors alike.

This article examines three tech stocks with yields above 3% that could deliver double-digit annual returns.

CSCO Cisco $45.51
SWKS Skyworks solutions $86.66
TXN Texas Instruments $161.06

Cisco (CSCO)

Cisco (CSCO) logo on an office building

Source: Ken Wolter / Shutterstock.com

comes first Cisco (NASDAQ:CSCO), one of the largest high-performance computer network systems in the world. The company is valued at $171 billion and has annual sales of approximately $54 billion.

Cisco has long been the dominant name in enterprise networking. This has been the case for so long that it is estimated that the vast majority of data transmitted over the Internet over the past three decades has passed through the company’s products. As a result, Cisco switches and routers are firmly established in the industry.

However, the company has made an effort to go beyond the hardware. This includes offerings such as cloud storage and security products, which are very closely intertwined. This makes it difficult for customers to switch providers without high switching costs.

Cisco has also become more of a software-as-a-service company, enabling recurring revenue streams and helping to remove some cyclicality from its business. The deferral items have been growing strongly for some time. For example, Cisco’s deferred revenue rose 11% to $23.3 billion in the fourth quarter of fiscal 2022.

The company also has one of the best balance sheets in the industry. Cisco ended the fiscal year with total assets of $94 billion, including nearly $19 billion in cash and cash equivalents, against total liabilities of $54 billion and long-term debt of just $8.4 billion.

Given the strength of its business and the company’s ability to provide smoother revenue outcomes, we believe Cisco is capable of delivering 6% earnings growth, which is close to its long-term average.

Cisco’s dividend growth streak is 12 years. The return on shares is currently 3.6%, which is twice the average return of 1.8% for the stock market S&P500. With a projected payout ratio of 43%, it’s likely that the company’s dividend will keep growing.

The final component of our projected return model is valuation. Historically, Cisco has had a price-to-earnings (P/E) ratio of just over 13. We have a fair value target of 14 times earnings as positive factors work in the company’s favour. With shares trading at 11.9 times earnings, that translates to a 3.3% annual tailwind from multiple expansion over the next five years.

Overall, we forecast Cisco to deliver a 12.4% annualized return over the next five years, driven by a 6% earnings growth rate, a 3.6% initial yield, and a low single-digit contribution from multiple expansions.

Skyworks Solutions (SWKS)

The Skyworks website loads on a smartphone

Source: madamF / Shutterstock.com

The next technology name to consider is Skyworks solutions (NASDAQ:SWKS), a leading semiconductor company. The company is valued at more than $13 billion and generated just over $5 billion in revenue last year.

Skyworks Solutions designs and sells semiconductor products to a variety of customers around the world. The company’s amplifiers, antenna tuners, converters, modulators, receivers and switches are used in end markets such as automotive, connected home, defense, industrial, medical and smartphones.

Of these markets, smartphones are currently the most important. The reason for this is the ongoing 5G expansion. Most major carriers have activated 5G service, but customer upgrades to devices that can access this network are afoot. It will be some time before the majority of customers buy 5G devices, which should give Skyworks Solutions a boost to its business.

There will be immense competition in the 5G space, but the company’s expertise, size and scale should work to its advantage as more people migrate to the service. Skyworks Solutions products are used by some of the largest technology companies involved in 5G such as: Apple (NASDAQ:AAPL), as a result of which the company enters into partnerships with some of the leading manufacturers of smartphones.

Skyworks Solutions has greatly increased EPS over the past decade. However, given the high base the company is taking, we think earnings growth of 5% is more likely going forward.

The company has increased its dividend for 10 straight years, and the stock is currently yielding 3.1%, one of the highest returns in its history. The projected payout ratio of 21% is extremely low, leaving plenty of room for Skyworks Solutions to continue increasing its payments to shareholders.

The company’s shares are trading at just 7.3 times forward earnings per share for the year. With a fair price-to-earnings ratio of 12, we believe Skyworks Solutions will add 10.5% to annual returns over the next five years through multiple expansions.

Overall, Skyworks Solutions is forecast to return 18.1% annually over the next half decade. This is due to earnings growth of 5%, an initial yield of 3.1% and low double-digit valuation tailwinds.

Texas Instruments (TXN)

Texas Instruments logo on its Dallas, Texas headquarters.

Source: Katherine Welles / Shutterstock.com

Our final technology name is Texas Instruments (NASDAQ:TXN), one of the largest semiconductor companies in the world. The $145 billion company has nearly $20 billion in revenue over the past 12 months.

Texas Instruments has two business segments. The analog segment produces products that help manage power in electronic systems and measure signals that enable the transmission or conversion of information. The embedded processing segment manufactures semiconductor chips that can be used in a variety of applications.

The company’s products are used in various fields, including the automotive industry, where the development of cars and trucks has increased significantly. This requires more advanced components to meet manufacturers’ demands. Other important end markets are industrial applications and communication services.

Texas Instruments has also invested heavily in developing more advanced chips, which has helped solidify its place in its industry. This has resulted in strong margin performance over long periods of time. The company’s earnings per share have grown at double-digit rates over the past decade, but we’re forecasting earnings growth of 7.5% as we think that offers some level of protection against what has typically been a cyclical business.

Texas Instruments yields 3.2% today. The company’s long 19-year dividend growth streak is one of the longest in the technology sector, and growth rates have been resilient over time. The expected payout ratio for 2022 is 52%.

The stock is trading at a price-to-earnings ratio of 16.9. We believe the fair value is closer to 20x earnings, which is close to historical valuation. Returning to our target price-to-earnings ratio would add 4.3% to annualized returns going forward.

As a result, Texas Instruments is expected to produce a 14.7% annualized return through 2027, made up of 7.5% earnings growth, a 3.2% dividend yield, and a low-single-digit contribution from a growing multiple.

At the time of publication, Bob Ciura did not hold any positions (neither directly nor indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publicity guidelines.

Bob Ciura worked at Secure dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Before joining Sure Dividend, Bob was an independent equity analyst. His articles have been featured on major financial websites like The Motley Fool, Seeking Alpha, Business Insider, and others. Bob has a bachelor’s degree in finance from DePaul University and an MBA with a concentration in investing from the University of Notre Dame.



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