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Stock Screen: Technology Stocks That Pay Dividends - October 10, 2011
Technology isn’t usually a space investors associate with dividends. While this has been the case historically, dividend payments have been cropping up in recent years. Although most companies in this space still don’t pay dividends, there are a few that have handsome distributions on both an absolute and a relative basis.
To ferret out some more companies in the technology area that have material dividends, we screened the Computer Software and Services, Computers and Peripherals, E-Commerce, Electrical Equipment, Electronics, Entertainment Technology, Foreign Electronics, Healthcare Information, Information Services, Internet, Semiconductor, Semiconductor Capital Equipment, and Wireless Networking industries. First, we looked for companies with dividend yields above 1.0% and then, to help ensure the dividends were sustainable, we limited the results to those corporations with long-term debt as a percentage of total capital below 50%.
The screen, simple as it is, netted 50 companies with yields ranging from just about 1% to above 7%. Long-term debt-to-total capital ratios ranged from nil to near the 50% limit. There was no particular correlation between debt and distribution. Of note, however, is the fact that yields drop quickly toward the market average—not surprising given the nature of the industry.
Motorola Solutions (MSI) designs, manufactures, and services analog and digital two-way radios, wireless LAN, mobile computing, security devices, wireless broadband systems, and end-to-end enterprise mobility solutions to a wide range of customers including government and public safety agencies, as well as retail, energy, utilities, transportation, manufacturing, and healthcare customers. Motorola Solutions’ 2.3% dividend yield is relatively high when compared to those of industry peers.
MSI’s government business is holding up quite well. Due to the necessity of public safety and mission-critical two-way radios, this business posted a mid-single-digit sales increase during the June quarter. Profits were especially strong in the Americas and Asia. The company continues to invest in public safety LTE data systems, and is currently receiving orders. This 4G (fourth generation) network will permit relatively fast transmission of higher-quality video data and help first responders to react more efficiently.
The Enterprise division is performing admirably. Revenues were up double digits in the second quarter, owing to strength in the Europe/Middle East and Africa region, as well as in Asia. The transportation and logistics subsector remains strong. What’s more, the company has pared expenses. General and administrative costs related to the separation from Motorola Mobility have been removed, allowing for a significant decrease in operating expenses from last year. Finally, the divestiture of the Networks unit has enabled the company to return more cash to shareholders.
FactSet Research (FDS) is a leading provider of global financial and economic information, including fundamental financial data on tens of thousands of companies worldwide. By integrating content from hundreds of databases with powerful analytics on a single platform, the company supports the investment process from initial research to published results for buy and sell-side professionals. Although the stock’s current 1.2% dividend yield is below the Value Line median, when considering only technology stocks, its payout is on par.
FactSet is coming off a good fiscal year (ended August 31, 2011). The bottom line advanced at a double-digit percentage rate during that time frame, despite headwinds from higher labor/data-gathering costs and difficult conditions for many financial services companies in the fiscal year’s final stages. Growth was fueled by a strong top-line performance, as all of the important fundamentals, such as annual subscription value, client count, and total number of professional users, have continued to improve. We feel this reflects the company’s cross-selling initiatives and efforts to build its proprietary content and customer support services. We think that this fiscal year will be healthy, as well. Renewed turmoil in the equity and broader financial markets may curtail demand for stock data a bit in the coming quarters. However, we expect the company to remain on a healthy growth track as ongoing product development initiatives create revenue opportunities. Looking ahead, acquisitions are an option, given the company’s solid cash level.
Corning (GLW) Corning traces its origins to a glass business established in 1851. Today, it produces glass substrates used to make displays for laptop computers, LCD monitors, LCD TVs and other handheld devices like digital cameras, PDAs and navigators. Glass substrates for LCD panels require pristine surface quality and must withstand heat without being transformed. These requirements are not satisfied by ordinary glass. Corning operates five segments, Display Technologies, Telecommunications, Environmental Technologies, Special Materials, and Life Sciences. The company owns 50% interests in glass panel producer Samsung Corning and silicone product maker Dow Corning.
Corning’s September-period results were likely hindered by weaker end demand for liquid crystal display (LCD) glass, causing OEMs to lower inventories. Thus, volumes in the wholly owned Display unit were probably about flat with the June period. We think price erosion was moderate. What’s more, at the 50%-owned Samsung Corning Precision subsidiary, volumes appear to have declined about 30% from the prior quarter, exacerbated by some likely market-share loss. Overall, we look for a year-over-year earnings decline for 2011.
Still, we believe that the bottom line will snap back next year. Retail LCD sales are trending higher in most regions, and Corning expects around a 10% volume advance in 2012. What’s more, Gorilla Glass sales might well support ongoing stellar growth in Specialty profits. Furthermore, Telecom income is on the rise, thanks to growing demand for optical fiber, fiber-to-the-home, and cable products, along with solid cost controls. For the longer term, Corning is increasing capacity in anticipation of solid glass demand.
Recently, the company upped its dividend payout by 50%, lifting the yield to 2.2% (based the current stock price). Furthermore, the board authorized a $1.5 billion share repurchase program. As volumes stabilize and capital expenditures are curbed, we expect future free cash flow to fully support management’s efforts to return value to shareholders.
At the time of this writing, the author did not have any positions in any of the companies mentioned.