Coffee Sipping Big Board Stocks

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5 high-yield, high-tech stocks for 2015

MARKETWATCH 6:31 AM ET 12/18/14

Symbol Last Price Change
DLR 65.65up 0 (0%)
DBD 34.09up 0 (0%)
GRMN 53.38up 0 (0%)
IBM 151.93up 0 (0%)
HPQ 38.65up 0 (0%)
QUOTES AS OF 04:05:01 PM ET 12/17/2014

Protect against turmoil with steady stream of dividends

In 2014, the tech sector has once again proven that it's one of the biggest drivers of returns for investors.

As proof, consider the iShares Dow Jones U.S. Technology ETF (IYW) or the Technology Select Sector SPDR (XLK) , both up over 12% year-to-date vs. about 7% gains for the broader S&P 500 index (SPX) .

As we enter 2015, however, there are concerns that high-earnings multiples and continued softness in global IT spending -- particularly in Europe -- could weigh on the sector.

That presents an interesting challenge for investors. How can you tap into tech, but with limited risk?

One way is to seek out high-tech companies that pay high dividends, with a reliable income stream supercharging returns or baking in a bit of cash to limit your risk should the market continue to be volatile in the New Year.

So which dividend stocks in tech are worth a look? Here are five to consider:

Digital Realty Trust (DLR)

-- 2014 Performance: +31%

-- Market Cap: $8.7 billion

-- Dividend Yield: 5.2%

Though Digital Realty Trust Inc.(DLR) is structured as a real-estate investment trust, it is very much a play on technology. Digital Realty(DLR) focuses on data-center properties and other high-tech real estate, with tenants ranging from small start-ups looking for flexibility to stodgy government entities just looking for storage.

Like any good REIT, Digital Realty(DLR) has been increasing dividends ever since it went public in 2004 -- from just under 16 cents per quarter at its debut to 83 cents today.

And last quarter, funds from operations totaled $1.21 per diluted share, leaving plenty of wiggle room for both sustained dividends and future increases.

The rise in "big data" should create tremendous demand for storage, and Digital Realty(DLR) data centers will also be in high demand as a result.

And, by the way, if the economy does start to flag and enterprise spending stays soft, outfits like DLR are in a very good position because they allow for flexibility and short-term cost savings for companies that don't want to invest a lot of capital in their own operations. Digital Realty(DLR) is also aggressively growing overseas, as evidenced by a recent partnership with Australia's government.

With an impressive 5.2% yield, you could do far worse among income investments in any sector right now. And if you want high-tech dividend stocks, DLR is one of the best.

Diebold

-- 2014 Performance: +2%

-- Market Cap: $2.2 billion

-- Dividend Yield: 3.4%

Diebold Inc. (DBD) isn't your typical tech stock. The company itself is actually over 150 years old, formed as a safe and locks company, and has evolved into a high-tech provider of security solutions -- though still mostly for banks.

Of course, that means the company has had a rough go of it since the Great Recession, thanks to a heavy reliance on financial firms. While the S&P 500 is up over 120% since 2009, DBD is up about 25% in the same period.

But there are signs of life at Diebold after a big executive shakeup in 2013, followed by a multi-year restructuring that was designed to save the company more than $100 million a year -- a substantial chunk of change for a firm with only a $2.2 billion market value.

The restructuring appears to be going well, with Diebold seeing third-quarter sales up about 9% and yet another quarterly profit compared with a deep loss in the previous year. There's still work left, of course, with chief exec Andy Mattes saying that Diebold is in the "walk phase of our 'crawl, walk, run' turnaround." But signs are encouraging.

In addition to cost-cutting efforts, Diebold continues to innovate with things like its "responsive banking concept" that boasts touch screens, remote video capabilities and cardless transactions as a way to marry the best of a brick- and-mortar branch with the scale and convenience of digital tools.

Looking forward, Diebold should see revenue growth of about 7% next quarter, and issued forward guidance of about 15% earnings growth in 2015. At that rate, the already substantive dividend would be just under 55% of profits -- making it not just sustainable, but eligible for future increases.

China Mobile

-- 2014 Performance: +9%

-- Market Cap: $230 billion

-- Dividend Yield: 3.4%

China Mobile (CHL) may be a surprising pick to some investors, considering the very real challenges in the region right now. However, keep in mind that China Mobile has actually outperformed the S&P 500 slightly in 2014 -- so let's not lump this telecom giant in with other struggling Chinese companies.

Part of the reason China Mobile has bucked the trend is its combination of stability and great growth.

As a state-owned telecom in the most populous country in the world, it boasts a total wireless subscriber base of about 800 million -- about 2.5 times the entire population of the United States! Furthermore, it is still growing, both in overall subscribers and in its services. For instance, CHL set a year-end target of 50 million 4G subscribers by year-end, and recently topped that measure early.

Yes, there are big risks in China right now. And no, China Mobile is not immune, as evidenced by its recent earnings report that showed the first year-over-year revenue drop since before the financial crisis. But patient, long-term investors have a lot of potential here.

Consider that, big picture, revenue should grow by about 20% next year . And also consider that, in calendar 2005, the telecom company paid just under 59 cents in dividends -- but paid about $1.83 per share this year, for a roughly 210% increase in payouts! And with projected earnings of about $4.30 next year, the distributions are still under 45% of total profits, meaning this dividend growth will continue.

China Mobile could be a tremendous long-term dividend growth play for those who aren't afraid of short-term volatility.

Garmin (GRMN)

-- 2014 Performance: +13%

-- Market Cap: $10.0 billion

-- Dividend Yield: 3.6%

I talked up Garmin Ltd.(GRMN) roughly a year-and-a-half ago, as one of my favorite +5% yield dividend stocks. Shares have soared about 50% since, but after a pullback from 2014 highs, it could once again be time to consider adding to your position in this dividend-paying tech stock.

Garmin (GRMN) is a familiar name among consumers for its GPS navigation tools, but the business has diversified beyond old- school consumer gadgets. Garmin(GRMN) is involved in airplane and marine navigation systems, as well as in-dash systems, including a deal to make the navigation systems for Mercedes-Benz through 2017.

There is also a big push into trucking and logistic GPS technology on top of that, something that's increasingly important to both tracking packages and monitoring fleet vehicles for all manner of businesses.

At the same time, Garmin(GRMN) is seeking out new applications for its technology that include pet location technology for lost dogs, fitness apps for runners, back-up cameras for vehicles, and even dash cams.

Consider that in October, third-quarter results for Garmin(GRMN) showed a beat on both the top and bottom lines, thanks in part to 43% growth in its fitness segment, and growth of 19% in both its outdoor revenue and its aviation segments.

Throw in over $2.7 billion in cash and investments over zero debt, and this is a company with a very enviable balance sheet.

As for dividends, Garmin(GRMN) is paying out about 60% of total profits via is 48 cent quarterly dividend. That's good for a sustainable yield of about 3.7% at current pricing, and there is room for upside as earnings continue to grow.

IBM (IBM)

-- 2014 Performance: -19%

-- Market Cap: $150 billion

-- Dividend Yield: 2.9%

Now that we've talked about some hidden gems, it's important to consider the notion of large-cap underperformers like International Business Machines Corp.(IBM) Sure, IBM(IBM) stock has been battered, but Big Blue isn't going anywhere with its $14.1 billion in cash and investments, $100 billion in annual sales, and some $18 billion annually in operating cash flow.

Yes, weak earnings in October resulted in a deep selloff and has sparked talk of another restructuring for the tech giant. And yes, its dividend is just 2.9% -- putting it at the bottom end of the yield rankings on this list.

But IBM(IBM) now has a forward price-to-earnings ratio of less than 9, indicating negativity is mostly priced in.

Remember when a battered Hewlett-Packard(HPQ) was trading for a single-digit P/E with a substantial yield at the end of 2012? The stock has roughly tripled from there!

And even if those big gains don't happen immediately, IBM(IBM) has a history of dividend payouts since 1916, and there's built-in stability here with a reliable dividend. Furthermore, buybacks will keep Big Blue earnings humming along.

Consider that IBM(IBM) reported 989.7 million shares of common stock outstanding as of Sept. 30, down from 1.18 billion in September 2011. That's a reduction of 16% in shares outstanding in only three years.

If and when the global economic environment picks up and boosts IT spending, IBM(IBM) will reap big benefits. Despite the short-term risk of continued declines, I think long-term investors should give this tech giant a look at current pricing.

-Jeff Reeves; 415-439-6400; [e-mail]

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12-18-140631ET
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