3 Dividend-Paying Tech Stocks to Buy in October
For many investors, dividend stocks and tech stocks are a contradiction.
After all, tech stocks tend to be growth-oriented, and most choose to reinvest earnings into business growth, rather than pay them out to shareholders. Long duration Apple CEO Steve Jobs refused to pay a dividend, saying it was a sign a company was running out of ideas.
However, there are dividend-paying tech stocks, among more mature companies and certain sectors like semiconductors. Keep reading to see three that are great buys now.
1. The leader in enterprise technology
It’s hard to think of an area of enterprise software that Microsoft (MSFT -5.08%) With its massive base of Windows and Office users, Microsoft can easily add and scale new products, like Teams, its competitor to Slack, the messaging platform acquired by Selling power for $28 billion last year, or Azure, its now difficult cloud infrastructure business Amazon Web services for industry leadership.
Microsoft is also making so much money that it can easily expand through acquisitions, including LinkedIn, GitHub and its pending deal for ActivisionBlizzard. These acquisitions strengthen its positions in professional networks and social media, DevOps and open source, and video games.
In other words, Microsoft’s competitive advantages in enterprise technology only seem to be getting stronger, and its numbers back it up. In the second quarter, revenue jumped 12%, or 16% in constant currency, to $51.9 billion, while operating profit rose 14% in constant currency to $20.5 billion, giving the company a whopping 40% operating margin. Growth has been widespread and intelligent cloud, which includes Azure, is now its main business segment. Guidance was also strong for the full year, forecasting 19% revenue growth at constant currency and 21% operating income growth at constant currency.
Microsoft currently offers a dividend yield of 1.1% and has just increased it by 10% to $0.68 per share each quarter. With its product diversity and installed user base, Microsoft is a good bet to outperform in a downturn. Expect the company to deliver another round of strong results when it releases its third quarter results later this month.
2. A sticky software ecosystem
Intuitive (INTU -4.46%)the parent of online business tools like QuickBooks and TurboTax, has an enviable business model.
Once you upload your information and get used to using its products, there are significant switching costs, giving it a sticky product ecosystem. Regular customers are also the cheapest to serve, as there are no acquisition costs.
Over the past decade, Intuit has moved its software to the cloud, which has helped drive strong profitability. In its just-ended fiscal year, it posted net income of $2.1 billion on revenue of $10.2 billion, or a margin of 20.3%.
Its growth also remains strong, with organic revenue up 24% in its latest quarter, or 32% including its acquisition of Mailchimp. In QuickBooks, its largest business, revenue rose 34% for the quarter and 33% for the year.
Like Microsoft, Intuit should do well even in a recession. The company provides tools businesses rely on, and its earnings make it less vulnerable to an economic downturn than unprofitable software stocks.
With a dividend yield of 0.8%, Intuit won’t win any awards from income investors, but shareholders should expect that payout to increase over time given the company’s growth rate. . Management has raised the dividend every year by 10% or more since it launched it in 2011. Meanwhile, the stock is down more than 40% from its peak last November, which now makes it a good time to buy.
3. The company the world depends on
Taiwan semiconductor manufacturing company (TSM -6.19%) may not be a household name in the US, even among investors, but chances are you’ll be using the chips he made.
This is because its chips are found in most devices around the world. The company manufactures 65% of the world’s semiconductors and 90% of its advanced chips. Other chip companies focus on design, but most outsource manufacturing to TSMC, giving the company a virtual monopoly in manufacturing. It takes a lot of capital to build semiconductor foundries. Even though the United States has just passed the CHIPS Act to fund more domestic production, it will take a long time to overthrow Taiwan Semi as the category leader, especially as it continues to show strong growth.
In the second quarter, revenue rose 36.6% to $18.16 billion and earnings per share jumped 76.4%. The company’s profit margins are also exceptional, with a net margin of 44.3% in the second quarter.
Based in Taiwan, TSMC is insulated from much of the tumult around Chinese stocks, making it more reliable than its mainland-based peers. The company is a strong dividend payer, currently offering a 2.4% yield.
With the stock down 50% from its January peak in this dominant activity, investors should take advantage of the sell-off.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jeremy Bowman holds positions at Amazon. The Motley Fool occupies and recommends Activision Blizzard, Amazon, Apple, Intuit, Microsoft, Salesforce, Inc. and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.