Technology stocks aren’t usually known for paying large dividends, but here are three that do.
Each of these companies would be a welcome addition to a portfolio focused on larger, more-stable, dividend-paying tech companies. Let’s check them out:
AT&T (T) was known as “Ma Bell” in my youth, and it had a monopoly on U.S. phone service in those days. You didn’t own your phone back then — you rented it from AT&T.
But the company has transformed itself over the decades from a phone company into a technology giant, providing 13.5 million people with Internet service and 25 million with cable TV and other entertainment. AT&T also just won a big lawsuit that allowed it to acquire Time-Warner (TWX) over U.S. government objections — one of the first big antitrust cases since Uncle Sam tried to clip the wings of Microsoft (MSFT) in the 1990s.
AT&T also boasts just a 9.14 forward price-to-earnings ratio, making it very cheap. Additionally, the firm has an incredibly strong cash flow that has allowed T to buy back $6 billion in stock and send a whopping $65 billion back to shareholders in dividends since just 2013.
At the same time, acquisitions have helped AT&T grow its gross revenues from $128 billion in 2013 to $160 billion in 2017. Best of all, the stock is trading near a 52-week low and has a juicy 6%+ dividend.
IBM (IBM) was a stalwart of my father’s investment portfolio. Like many people of his generation, my dad considered IBM one of the greatest companies of all time, but that was when “Big Blue” was primarily a computer company. Today’s IBM is an IP consulting firm, having sold its computer business long ago.
This change in strategy hasn’t occurred without problems. For instance, gross revenue has declined sharply from $98 billion in 2013 to just $79 billion in 2017.
However, IBM’s cash flow has remained incredibly strong, allowing the company to buy back nearly $40 billion in stock and pay $24 billion in dividends since 2013. IBM also has one of the strongest cash-flow statements in the tech sector.
Additionally, the stock is also cheap right now, with just a 10x forward P/E despite a 4.5% dividend yield. IBM is also attractive in technical terms, as the stock currently trading near its 52-week low.
You’ve probably sat behind or next to one of Iron Mountain’s (IRM) trucks in traffic, which probably made you think: “Hey, document retention is a thing of the past, isn’t it?”
Well, IRM has had the same epiphany, which is why the company has made the transition to focusing on electronic-record retention while still providing physical records storage. Iron Mountain has also made strong moves internationally, as the firm believes that most of its long-term growth with come from overseas.
For instance, IRM’s latest acquisition was the Australian company Recall, which cost $2.1 billion. Such acquisitions have helped IRM grow gross revenue to $3.9 billion in 2017 from just $3 billion in 2013.
However, Iron Mountain mostly financed the Recall deal with debt, which has given the company a hefty 63% debt-to-asset ratio. If this debt/asset ratio is any indication, Iron Mountain is probably at the tail end of its current acquisition spree, which means it’s now in the “consolidation-of-operations” phase.
And despite the high debt-to-asset ratio, the firm’s interest-coverage ratio is only slightly above a modest 3.0. That means IRM should have no trouble making interest payments with room to spare.
Lastly, IRM reorganized as a REIT in 2014, which forces the firm by law to distribute 90% or more of earnings to shareholders. As a result, the stock currently yields more than 6%. However, it’s trading near a 52-week low.
(This article was sent July 2 to subscribers of TheStreet’s Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this each day from Robert Powell, Peter Tchir, Jonathan Heller and others.)