Key Points
- IBM has collaborated with large companies for decades and is always innovating to remain competitive in the twenty-first century.
- Broadcom contributes to global connectivity; its products are critical to the 5G trend.
- Verizon is a utility-like company that has the potential to provide consistent dividends for the coming years.
Investors do not need to invest in consumer products companies such as McDonald’s or Coca-Cola to earn substantial dividends. Proven leaders in the technology sector may also generate significant revenue from their companies, filling the wallets of shareholders. Three technology titans that offer high-yielding dividends to investors are highlighted here.
1. A technology conglomerate
IBM is a technological company that provides large companies with computer hardware, software, and services. Despite being a technology company, IBM dates all the way back to the 1900s, and the company has been a major supplier of hardware solutions to businesses for decades. The firm continues to develop today, with a focus on machine learning, artificial intelligence, and cloud computing.
IBM is a very successful company, with over $73 billion in sales expected in 2020 and 10.8 billion dollars in free cash flow. The ability to distribute such huge cash flows to shareholders through dividends allows the company to generate such enormous cash flows. IBM’s dividend has been raised 26 times over the last 26 years, and with a payout ratio of just 54% of free cash flow, the firm has plenty of space to continue rewarding shareholders with a 4.5 percent return in the future.
2. Using Semiconductors to connect the world
Broadcom Limited (NASDAQ:AVGO) is a semiconductor manufacturer and software provider to big businesses. Broadcom’s semiconductor division, which is focused on connective applications such as networking, internet, and wireless technologies, accounts for more than 70% of the company’s $23 billion in 2020 sales. Broadcom’s products are widely utilized in the smartphone industry, with Apple serving as the company’s biggest client.
While many businesses that offer high dividend yields have sluggish growth rates, Broadcom’s dividend has risen at an average annual rate of 50% over the last five years. Broadcom turned $11.6 billion in sales into free cash flow in 2020 and paid out $5.2 billion in dividends, resulting in a 45 percent dividend payout ratio. Its yield is presently about 3%. Broadcom’s goods should continue to be in demand as semiconductor demand grows in the automotive, 5G, and industrial sectors, which means investors may anticipate dividends to continue to grow in the coming years.
3. The “pipes” of the wireless world
Verizon Communications is a telecommunications corporation that owns and runs the country’s most popular cellular network. Wireless carriers are virtually identical to utility providers in terms of their business model. In today’s world, a consumer’s phone bill ranks with the energy bill and mortgage payment at the top of the family budget. Verizon is one of a tiny group of companies that, together with AT&T and T-Mobile, dominates the wireless industry in the United States. A wireless network links cell phones, the internet, and IoT, making networks the contemporary world’s digital pipeline.
Verizon’s company is expected to earn $128 billion in sales in 2020 and just like the other businesses on this list, it generated a significant amount of free cash flow i.e 23.5 billion dollars last year. In 2020, management will spend 10.2 billion dollars on dividend payments which will result in a payout ratio of 43 percent, an extremely low-cost ratio. Investors should not anticipate rapid growth, since the business spends much in developing and revamping the wireless network. The dividend has risen at an average annual rate of 2.5 percent over the last decade and now yields about 4.5 percent, but investors can rely on Verizon’s payout to continue growing at a safe and stable pace in the years ahead.
Here’s the bottom line
In today’s market, when 10-year US Treasury bonds yield only 1.3 percent interest, high-quality dividend-paying equities may be an excellent tool for investors. These three technological firms are market leaders in their respective sectors, with big and successful business models that generate significant free cash flow to pay dividends to investors. If you’re searching for a source of investment income, this is an excellent place to start.
This post expresses the author’s viewpoint, which may differ from that of a Motley Fool premium advice service’s “official” recommended stance. We are diverse! By challenging an investment theory – even our own – we may all learn to think critically regarding investing and make better choices that help us become wiser, happier, and wealthier.
