Technology

4 Merrill Lynch Cash-Rich Dividend Technology Stocks to Buy for 2016

Lee Jackson

Published: January 4, 2016 10:45 am

Last Updated: January 13, 2020 3:29 pm

Most stock investors are glad to see 2015 in the rear-view mirror. The Dow Jones Industrial Average and the S&P 500 were both down for the first time since 2008. Investors were also smacked in the face with the first 10% correction in almost four years. Across Wall Street, many strategists remain less than thrilled with the prospects for 2016, but many are bullish on large cap stocks with dividends, after the group trailed in 2015.

Merrill Lynch strategists are very positive on quality dividend stocks, where safety and increases trump the highest yielding companies. One sector that is cash rich is technology, and the yields are solid and look to be well covered. We screened the Merrill Lynch research database for large-cap blue-chip technology stocks rated Buy with solid dividends.

Cisco Systems

With a whopping $60 billion of cash on the books, this networking giant should easily cover the dividend, and investors could be in store for a 2016 increase. Cisco Systems Inc. (NASDAQ: CSCO) is a provider of data networking products using Internet protocol technology. Its solutions transport data, voice and video within buildings, across campuses and around the world.

Cisco posted disappointing earnings in November, and many on Wall Street lowered their price targets for the networking giant significantly. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.

Cisco won an important contract last year for the Verizon build-out of the company’s next-generation 100G metro network. While Cisco’s optical business is small as a part of total revenue, this win is seen by Wall Street as a significant endorsement of the investments Cisco has made into its optics business. Merrill thinks the routing revenue from the deployment is still a wildcard for 2016 earnings.

Analysts across Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Many think that Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate. A jump from 40 GE to 100 GE data center switching and next-generation security are also adding to the total sales profile and product mix.

Cisco investors receive a 3.09% dividend. The Merrill Lynch price target for the stock is $30, and the Thomson/First Call consensus target is $30.63. The shares closed most recently at $27.15.

This top chip stock traded sideways last year and actually closed down from where it started 2015, but with $21 billion of cash on the books the dividend looks very safe. Intel Corp. (NASDAQ: INTC) is among the companies with the highest shareholder cash returns, at approximately 8%, but it has lagged high-growth specialty chip stocks.

Intel purchased chip rival Altera last year for a massive $16.8 billion. Some on Wall Street viewed the deal pessimistically, citing its high cost, aggressive growth assumptions by Intel and the increase in debt. Others feel the addition will help Intel start to move away from PC dependence. This acquisition puts Intel into the traditional fabless market of programmable logic devices, and by 2020 50% of Altera’s product line could be manufactured at Intel facilities.

Intel’s NAND flash memory business has a strong focus on enterprise opportunities. Many on Wall Street think its new chip, a collaboration with Micron Technology called the 3D XPoint, could be primarily In-Memory compute in servers, and its launch should coincide with Intel’s Purley platform server launch in 2016.

Intel investors receive a 2.75% dividend. The Merrill Lynch price target was recently raised to $40. The consensus target is $36.22. Shares closed Thursday at $34.45.
Microsoft

This top technology stock gives investors a degree of mega-cap tech safety and has a massive $99 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find increasing support from portfolio managers, who added the software giant to their holdings at an increasingly faster pace last year.

Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service and maintain that Microsoft is discounting Azure for large enterprises such that Azure may be cheaper than AWS for larger users. Many believe the company continues to make steady progress with its cloud transition and expect Office 365 and Azure to be solid contributors to top and bottom lines for the next several years. While not likely to snag the top slot from Amazon, it could add huge incremental revenue for years to come.

With gaming revenues growing at a huge pace, the Xbox continues to gain ever more fans as the ultimate console to own. The company continues to upgrade the popular device, and many think that it could dominate Sony’s PlayStation at some point down the road.

Microsoft investors receive a 2.58% dividend, and the forward valuation remains compelling. The $63 Merrill Lynch price target is higher than the $57 consensus. The stock ended last week at $55.48.

Qualcomm

This top technology stock has totally underperformed last year but has $17 billion of cash on the books and is also a member of the Merrill Lynch US 1 list. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA (Code Division Multiple Access) and other related technology patents. Qualcomm also provides systems software to wireless handset vendors and promotes applications and services that run on high-speed wireless networks.

The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA technologies. It recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide Qualcomm with a huge leg up in years to come. The company recently signed multiple licensing deals in China that gave the stock a solid boost.

The company recently announced that its corporate structure will remain the same and raised first-quarter earnings guidance. Merrill Lynch feels the company made the right move, and the synergies within corporate segments are significant. The analyst also notes the solid balance sheet that gives the company flexibility for acquisitions.

Investors receive a 3.85% dividend. Merrill Lynch has a mammoth $75 price target for the stock. The consensus target is $62.23. Shares closed Thursday at $49.99.