Technology

Merrill Lynch Has 4 Technology Stocks to Buy That Pay Big Dividends

Lee Jackson

Published: March 4, 2016 9:50 am

Last Updated: January 13, 2020 12:23 pm

With the market finally getting some legs, worried investors sitting on the sidelines with a ton of cash may be just ready to consider some buying, and one of the sectors that Wall Street almost universally likes for 2016 is technology. As a rule, these companies are free-cash-flow cows, have little debt and many have solid growth potential.

One conundrum that remains is that due to very low yields on government debt around the world, in some cases negative, Treasury yields have been kept low here at home. Investors looking for better growth potential and solid dividends may want to look at top technology companies that pay good dividends.

We screened the Merrill Lynch research database for technology stocks that were rated Buy, and also paid at least a 3.5% dividend. We found four that look very attractive now.

HP

This is the printer and personal computer businesses of the old Hewlett-Packard. HP Inc. (NYSE: HPQ) provides products, technologies, software, solutions and services to individual consumers and small- and medium-sized businesses, as well as to the government, health and education sectors worldwide. Its Personal Systems segment offers commercial personal computers (PCs), consumer PCs, workstations, thin client PCs, tablets, retail point-of-sale systems, calculators and other related accessories, software, support and services for the commercial and consumer markets.

The Printing segment provides consumer and commercial printer hardware, supplies, media, scanning device and software and services, as well as laserjet and enterprise, inkjet and printing, graphics, and software and web services.

HP investors receive a 4.46% dividend. The Merrill Lynch price target for the stock is $15, and the Thomson/First Call consensus estimate is$13.43. Shares closed most recently at $11.11.

This stock fell out of the limelight and could be poised for a solid comeback. Garmin Ltd. (NASDAQ: GRMN) designs, develops, manufactures, markets and distributes a range of navigation, communication and information devices worldwide. It operates through five segments: Auto, Aviation, Marine, Outdoor, and Fitness. While the growth of smartphone GPS put a crimp in the company’s business, the expansion into new products is proving successful.

The company has no debt and boasts cash of over $1 billion, or $5.50 a share. There’s some frustration that it hasn’t been more aggressive in repurchasing shares, given its strong balance sheet. That could change if activists take aim at Garmin, which is chatter that has been heard on Wall Street for years.

Garmin investors receive an outstanding 4.98% dividend. The $47 Merrill Lynch price objective is higher than the consensus estimate of $40.11. Shares closed at $40.94 on Thursday.
Qualcomm

This top technology stock has totally underperformed this year but resides on the Merrill Lynch US 1 list of top picks. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies. The company recently settled with the SEC over the hiring of relatives of Chinese officials, which removed an overhang on the stock.

Qualcomm’s licensing business, QTL, holds the vast majority of its patent portfolio. Qualcomm Technologies, another subsidiary, operates substantially all of Qualcomm’s engineering, research and development functions, and substantially all of its products and services businesses, including its semiconductor business, QCT.

The growth of 3G mobile technologies in emerging markets, like China and India, has benefited 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 (Code Division Multiple Access) 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 the company with a huge leg up in years to come. The company recently has signed numerous big licensing deals in China that gave the stock a solid boost.

The company has announced a joint venture with Japan’s TDK company that will enable delivery of RFFE (radio frequency front-end) modules and RF (radio frequency) filters to fully integrate systems for mobile devices and other fast-growing business segments. According to Qualcomm, the RFFE space is projected to be an $18 billion market by 2020.

The company posted strong fourth-quarter results, but a licensing dispute with Japanese technology giant LG has surfaced, and analysts feel the dispute could last through fiscal 2016. Merrill Lynch does remain positive on the stock and reiterated its Buy rating.

Investors receive a 3.67% dividend. Merrill Lynch has a $75 price target, well above the consensus price objective of $57.64. Shares closed Thursday at $52.38.

Western Digital

This long-time innovator in the storage industry is a leader in the total addressable hard disk drive (HDD) market. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content. It is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands.

The most compelling news is that the company made a stunning $19 billion purchase of SanDisk last year. This could be a strong addition to Western Digital’s current offerings, and the company could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.

Western Digital had initially put together a deal back in October to buy SanDisk for $19 billion. It was announced recently that China’s Unisplendour Corp had scrapped its planned $3.78 billion investment in the company, a move that in turn alters the terms of Western’s deal. Reportedly, the company will now present an alternative offer for SanDisk, consisting of more Western Digital stock and less cash, giving the deal an overall value of $15.78 billion. The value of the deal for SanDisk is now $78.50 per share, down from $86.50 when it was originally struck, according to SanDisk Executive Vice President Sumit Sadana.

Western Digital shareholders receive a 4.11% dividend. The Merrill Lynch price target is a whopping $76. The consensus target is $73, and the stock close Thursday at $48.66.

All these stocks are more suited for aggressive growth accounts. The dividend kicker makes them better choices for some investors as they will be well paid to wait in case a move higher takes longer than expected.