The Dow, S&P 500, and Nasdaq all rest right near new highs as we head into Christmas. The recent strength comes on the back of a tentative phase one U.S.-China trade deal, along with some better-than-expected economic indicators from both of the world’s two largest economies.
On top of that, IHS Markit now expects the U.S. economy to expand 2.2% in 2020. Therefore, with U.S. unemployment at 50-year lows and the Fed expected to keep interest rates low, stocks could continue to climb in 2020. However, uncertainty remains on the trade war front and we are headed into an election year.
With this in mind, investors should search for strong and established companies that pay a dividend to help bolster their portfolios. So we searched for tech companies with our Zacks Stock Screener that also pay a dividend that investors might want to buy for 2020…
AT&T is in the midst of a transformational period to revamp its business as pay-TV customers cut the cord. This includes its $80 billion-plus acquisition of Time Warner that will see it roll out a “thin client video service” and HBO Max in an effort to challenge the likes of Netflix NFLX, Apple AAPL, Disney DIS, and Amazon AMZN. AT&T also reached a deal with activist investor Elliott Management that will see it commit to more cost cutting measures and buybacks, as it continues to pay down debt.
On December 11, AT&T announced that it plans to cut spending by an additional $1.5 billion in 2020. AT&T also entered into a $4 billion accelerated share repurchase agreement that will see it “retire about 100 million shares in the first quarter of 2020.” On top of that, the telecommunications powerhouse continues to review its portfolio to “achieve its asset monetization target of $5 billion to $10 billion in 2020.”
Investors appear to be happy with AT&T’s commitments, with the stock up 20% in the last six months and 36% in 2019 to crush its market and rival Verizon’s VZ 9% climb. Still, T stock has plenty of room to run before it reaches its five-year highs. AT&T’s top and bottom lines are projected to climb in 2019 and 2020 and T stock is currently a Zacks Rank #3 (Hold) that sports an “A” grade for Value. Along with repurchases, AT&T returns value to shareholders through a 5.30% dividend yield, which easily tops VZ’s 4%. Plus, AT&T stands to benefit from the 5G revolution.
Broadcom Inc. AVGO
Broadcom is a semiconductor firm that has expanded its reach into infrastructure software solutions through acquisitions in recent years. This includes spending nearly $19 billion to acquire CA Technologies last November. AVGO then bought Symantec’s enterprise software unit over the summer. Broadcom last week topped our fourth-quarter fiscal 2019 earnings and revenue estimates and seemed to signal that it could potentially move on from the wireless-chip business.
AVGO stock is up 12% in the last three months and CEO Hock Tan believes that its “core semiconductor business is bottoming and will return to year over year growth in the second half of our fiscal year.” Our estimates call for Broadcom’s fiscal 2020 revenue to jump 10.7% to reach 25.02 billion, which would easily top 2019’s 8.4% top-line expansion. AVGO’s 2021 sales are then projected to come in 6.1% higher. Meanwhile, the firm’s adjusted earnings are expected to jump 8.2% this year and another 10% in 2020.
Broadcom stock has been on a staggering run over the last decade, but AVGO has cooled off. Still AVGO shares are up 83% in the last three years, against its industry’s 74% average climb and the S&P 500’s 42%. Despite the jump, AVGO stock is trading just below its industry’s average at 16.3X forward earnings, which also marks a discount compared to its own three-year high of 18.6X.
Going forward, Broadcom has decided to expand and shift some of its portfolio to become more dynamic. On top of that, its dividend currently yields 3.27%, which comes in well above the 10-year Treasury note’s 1.92%. And AVGO, which is a Zacks Rank #3 (Hold) at the moment, is part of an industry that rests in the top 14% of our more than 250 Zacks industries.
Applied Materials, Inc. AMAT
Applied Materials is a semiconductor equipment firm that is a leader in “materials engineering solutions” that are used to make “virtually every new chip and advanced display in the world.” Going forward, executives are confident that AMAT will thrive in the big-data and AI age. The firm also beat our Q4 estimates in mid-November and raised its Q1 fiscal 2020 guidance, as part of industry-wide demand recovery.
AMAT, like Nvidia NVDA and other semiconductor firms, saw it sales and earnings fall recently. Nonetheless, Applied Materials shares have soared over 85% in 2019 to top its industry’s 64% average. The company has also returned value to shareholders through buybacks, which included 60 million shares in fiscal 2019. AMAT’s dividend yield of 1.38% is the lowest on our list today. However, Applied Materials is the only stock that holds a Zacks Rank #1 (Strong Buy) right now, based on its strong longer-term positive earnings revisions.
AMAT is also part of our Semiconductor Equipment - Wafer Fabrication industry that ranks No. 2 out of 253 Zacks industries, and is trading at a discount against its industry and its own five-year highs. Peeking ahead, Applied Materials sales are projected to surge 14% in fiscal 2020 and another 7.3% in 2021 to reach $17.86 billion, which would easily top 2018’s $17.25 billion. And the firm’s adjusted earnings are projected to jump 24% in 2020, with 2021 expected to come in another 14.4% higher.
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