As we trudge through the dog days of August toward the traditional end-of-summer market slowdown, many of the firms we cover on Wall Street are making changes to their top portfolios as they get ready for the fall pickup in trading and volume. A new research report from UBS makes an interesting tech switch in the Dividend Rulers portfolio.

The Dividend Ruler portfolio has returned an outstanding total return of a cumulative 205.4% since inception in 2003, versus the S&P 500 total return of 155.5%. The portfolio trails the S&P 500 this year as dividend strategies have struggled in a rising interest rate anticipatory environment, but it could be poised for a nice finish to the year as that overhang fades with the first increase.

The UBS team makes one big switch to the portfolio in the tech sector, and we also update the other two large cap tech stocks that remain in the Dividend Rulers list.

Qualcomm

This tech stock has had a difficult year, and more difficult times could be ahead. Qualcomm Inc. (NASDAQ: QCOM) is removed from the list after a long residence in the portfolio, and it probably comes as little surprise to anybody who has followed the stock. The analysts note that the fundamentals for Qualcomm, particularly in its QCT, or chip manufacturing, business have sharply deteriorated in the company’s fiscal third quarter ending in June. While the company has announced cost cutting measures to “rightsize” the business, and a potential corporate restructuring could hold off further downside, the earnings and dividend growth outlook is now clearly more uncertain. So UBS removed the stock from the portfolio.

The company is reported to be losing chip business, and activist investor Jana Partners is said to be pressuring the company to spin off its chip business. Jana also wants Qualcomm to cut costs, accelerate a share buyback, improve disclosures and refresh its board. Jana is listed as one of the company’s largest shareholders, with a reported $2 billion stake. Reports indicate that the company does not want to spin off the chip business, and a showdown could occur.

Qualcomm investors are paid a 3.1% dividend. The Thomson/First Call consensus price target for the stock is $71.65. Shares closed Friday at $63.02.

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Texas Instruments

This old-school chip tech company joins the Dividend Ruler family and could be very well set further gains this year. Texas Instruments Inc. (NASDAQ: TXN) was the winner for the charging chipset solution that goes on the receive side of the new Galaxy GS6 phone, while another company won the transmit-side. The wireless charging solution is a good example of the company’s overall broad product portfolio.

The company generates up to 90% of its revenues from its analog and embedded processing businesses, which have well-diversified end-markets (autos, industrial, personal/consumer electronics), long product life cycles and limited capital intensity. Plus the UBS team is impressed with management’s commitment to returning 100% of its free cash flow to shareholders through dividends and share repurchases. Over the past five years, the company has increased its dividend at an annualized rate of 23% and has lowered the shares outstanding by nearly 40% since 2005. The UBS analysts expect dividends per share to grow 8% to 10% over the next few years.

Texas Instrument investors are paid a solid 2.8% dividend. The consensus price objective is $54.13. The stock closed Friday at $50.32.

Intel

This top chip company has been in Dividend Ruler portfolio for some time, and the recent very positive earnings report certainly helped to lift some of the pall hanging over the company. Intel Corp. (NASDAQ: INTC) is regarded as having among the highest shareholder cash returns at approximately 8%, but it has lagged high-growth specialty chip stocks. Despite the positive second-quarter earnings report, the stock is down a gigantic 18.4% year to date.

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Intel purchased rival Altera for a massive $16.8 billion. Some on Wall Street view the deal pessimistically, citing its high cost, aggressive growth assumptions on the part of Intel and the increase in debt. Others feel the addition will help Intel start to move away from personal computer dependence.

Wall Street consensus is that Intel’s pending acquisition would put it into the traditional fabless market of programmable logic devices, but ultimately by 2020 50% of Altera’s product line could be manufactured at Intel facilities.

Intel investors are paid an outstanding 3.4% dividend. The consensus target is at $33.61, while shares closed Friday at $28.88.

Microsoft

The software giant’s Azure cloud offering continues to gain traction. Microsoft Inc. (NASDAQ: MSFT) rolled out the company’s G-series cloud offering back in January. With 448 gigabytes of RAM and 6.6 terabytes of local solid state drive storage, the roll-out for customers is currently limited to the western United States. Wall Street analysts have pointed out that the Microsoft product offering beats Amazon’s by 80% on memory, and it is comparable on local storage and compute cores. Most importantly, it is a solid adjunct product to the core software business.

The stock has gapped up and down this year on earnings, and the release of the new Windows 10 has put some focus back on the software giant. Unfortunately some bugs in the software have cause update issues, which reportedly are being dealt with.

Microsoft investors are paid a 2.7% dividend. The consensus price target is set at $50. Shares closed Friday at $46.74.

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The Dividend Rulers portfolio may be poised to outperform over the rest of 2015 and into next year as dividend strategies become more attractive as investors realize any interest rate increases will be very slow and deliberate over the next two years.

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