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Stocks  | November 10, 2020

2020 will remain in the annals of Wall Street as one of the most bizarre years ever. After a punishing 35% decline in less than a month, the market roared back, despite the COVID-19 pandemic, to post all-time highs. As was the case over much of the past five years, the technology sector led the charge, and it continues to be a sector in which aggressive growth investors want to remain.

The problem for many investors who want to stay weighted to technology is that many of the momentum leaders are super high priced. If the sector hits some market turbulence and sells off, there could be some serious damage. One great idea is to look at tech leaders that also pay a solid and dependable dividend.

We screened the BofA Securities research database looking for Buy-rated technology stocks that also pay a higher dividend than the S&P 500, which as of Friday sat at 1.80%. While that seems low, it is higher than the yield on the 30-year U.S. Treasury bond.

Five stocks make the cut. While all are rated Buy at BofA Securities, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Broadcom

This stock has rallied smartly off the lows and offers big upside potential. Broadcom Inc. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.

Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Top Wall Street analysts like Broadcom’s leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand on the horizon.

The BofA Securities has remained positive on the shares, but in the past the firm noted the company’s large 15% exposure to iPhones. They said this earlier this fall when the company reported solid results:

Fiscal third quarter beat and fiscal fourth quarter ahead on 5G iPhone (wireless 50%+ quarter-over-quarter) & sustained cloud/networking (better than expected). We like the company’s diverse growth well positioned to benefit from trends of cloud/5G; 53% Free-cash-flow margin with room for a 10% dividend boost

Investors receive a 3.42% dividend. BofA Securities raised its price target to $450, well above the Wall Street consensus target of $402. Broadcom stock closed trading on Friday at $380.62.

Cisco

This is a mega-cap tech leader for more conservative investors to consider. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.

It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.

Cisco’s cybersecurity products give clients the scope, scale and capabilities to keep up with the complexity and volume of threats. Putting security above everything helps corporations innovate while keeping their assets safe.

The company reported in-line revenues for the most recent quarter, but the disappointing guidance caused some sellers to come in. Many on Wall Street remain positive as 5G, 400G, optical and WiFi 6 are expected to drive 2021 growth.

Shareholders receive a 3.84% dividend. The $50 BofA Securities target price compares with the $46.93 consensus figure. On Friday, Cisco Systems stock closed at $37.53.

Corning

This company continues to be a huge player in the fiber optic world. Corning Inc. (NYSE: GLW) is a technology pioneer that manufactures LCD glass for flat-panel displays for multiple product lines.

Telecommunications (30% of sales) produces optical fiber and cable, component hardware and equipment, and photonic components for the telecommunications, CATV and networking industry. In addition, the company’s Environmental Technologies division (12% of sales) produces specialized glass, glass ceramic and polymer-based products for the automotive industry. The future remains solid for this diversified digital world leader.

Shareholders receive a 2.54% dividend. BofA Securities has a $38 price target. The consensus target is $35.70 Corning stock ended last week at $34.71 a share.

IBM

This blue chip giant still offers investors a very solid entry point after posting the best quarters for earnings in years. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.

IBM’s five major segments are: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for their positive outlook going forward. Note that IBM is one of the world’s most valuable brands.

In October, IBM announced the tax-free spin-off of its Managed Infrastructure Services unit (today part of GTS). The transaction creates value by setting up core IBM on a growth trajectory and creating two more focused companies. The analysts said this about the third-quarter results:

The fiscal third quarter was in-line. We model fourth quarter revenue growing mid-teens quarter over quarter (in-line w/seasonality). Cost actions, mix drive gross margins +2% q/q in 4Q. We expect transaction processing and GTS revenues to remain weak in the fourth quarter. We model $10 billion in free-cash-flow in fiscal 2020. Fiscal 2021 estimates will reflect investments for growth. Reiterate Buy on strong growth in Red Hat, and free-cash-flow growth after investment phase.

Shareholders receive 5.72% dividend. The BofA Securities price target is $153. The posted consensus target is much lower at $135.93, and the final IBM stock trade on Friday came in at $114.04.

Texas Instruments

This old-school legacy semiconductor tech company offers solid value at current levels and is a great pick for investors who are more conservative. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components, to digital light-processing technology and calculators.

Some 65% of the company’s sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets. The company is a big Apple supplier, so the long-term outlook for this venerable leader makes it a safer bet for investors with less risk tolerance.

The stock was crushed after posting solid third-quarter results but guidance that surprised Wall Street. While shares have rallied back sharply, there is still sizable upside for investors at current levels.

Investors receive a 2.60% dividend. BofA Securities has set a $175 price target. The consensus target is $158.11, and Texas Instruments stock was last seen trading at $157.74.

With outstanding metrics and good dividends, these quality technology stocks make good sense for more conservative growth investors looking to increase exposure to the sector. Solid total return potential and less potential for volatility than the momentum behemoths make then outstanding long-term portfolio additions.


A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 


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