Estimated read time: 3 minutes
Publication date: 5th Oct 2020 14:35 GMT+1
Dividend stocks remain a compelling bet for investors as these companies can provide you with a steady stream of income as well as capital appreciation over the long-term. However, investors need to note that just because a company pays you a dividend, does not mean it is investable.
You need to deep-dive into several other aspects including a company’s payout ratio, dividend growth history, business model, competitive advantages and dividend yield before you make an investment.
Here we take a look at two dividend paying stocks in the tech sector that remain top picks in 2020 and beyond.
A semiconductor giant
Broadcom (NASDAQ: AVGO) has been one of the top dividend growth stocks in the last decade. As per Finscreener’s dividend dashboard, Broadcom has increased dividends at an annual rate of 66.5% in the last five years.
Broadcom started paying quarterly dividends of $0.07 in the last quarter of 2010. This payout has now increased to $3.25 per share, a compound annual growth rate of 47%. Further, the stock has returned 1,450% in the last 10 years, easily crushing the broader market.
Despite this massive gain in stock price, Broadcom has a forward yield of 3.6%. This means a $10,000 investment in Broadcom stock will generate $360 in annual dividends. Broadcom’s free cash flows has increased by 6x since 2015 and it has a payout ratio of less than 50%, making its dividend safe even amid an uncertain business environment.
Broadcom’s low payout ratio allows it reinvest in capital expenditure, acquisitions or pursue other growth opportunities. The upcoming transition to 5G will benefit Broadcom that develops wireless radio processors. Further, the company is also an Apple (NASDAQ: AAPL) supplier which means the next line-up of 5G enabled smartphone will be a key driver of revenue growth.
Broadcom sales rose 2.7% year-over-year in the first half of fiscal 2020. However, its operating income was down 3.3% while net income fell 31% year-over-year. The company’s free cash flow rose 30% to $2.75 billion which is enough to support an increase in dividend payments.
Brookfield Infrastructure Partners has a forward yield of 4.1%
Another top dividend paying stock is Brookfield Infrastructure Partners (NYSE: BIP), a company that owns 1,250 miles of transmission lines. Brookfield Infrastructure’s assets enable it to provide a steady stream of income and support its 4.1% forward yield.
Brookfield’s transmission strategy is based on running development opportunities that the company then sells at a profit. Its North American transmission assets were sold after they generated an internal rate of return of 21%.
Brookfield expects revenue to b marginally higher in 2020, despite the pandemic and is optimistic about robust earnings growth in 2021. The company has forecast earnings to grow by 15% year-over-year in 2021 which might allow it to grow earnings between 5% and 9% next year.
Brookfield has increased dividends for 13 consecutive years and its diversified asset base will continue to help the company generate predictable cash flows.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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