Technology

Merrill Lynch Likes 4 Large Cap Dividend Tech Stocks Now

Lee Jackson

Published: June 20, 2016 9:55 am

Last Updated: January 13, 2020 6:37 am

One way or another, by the end of this week we will know the result of the Brexit vote, and while the volatility may ramp up some between now and then, at the end of the day investors need to focus on what sectors will be solid for the rest of 2016. One area that makes good sense for more aggressive accounts is technology, especially large cap dividend-paying leaders.

We screened the Merrill Lynch research universe for tech stocks that pay a higher dividend than the 10-year U.S. Treasury and that are rated Buy at Merrill Lynch. We found four companies that have all reported solid numbers and look poised for a solid second half of 2016.

Applied Materials

This semiconductor capital equipment leader has moved up nicely this year after underperforming. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.

The analysts are very positive on the stock and see Applied Materials benefiting not only the semiconductor side of the business, but also from larger, higher resolution and flexible screens on the display side of the business. Despite reporting solid first-quarter earnings that were above consensus, and guidance that was in line with expectations, the stock is still very reasonably priced. It may very well be one of the best technology values available for investors today. Some Wall Street analysts see continued FinFET capacity expansion (10nm/14nm/16nm) and transition to 3D NAND, with DRAM spending remaining strong next year.

Earlier this month the company announced a new $2 billion share buyback program, which comes on the heels of a recently completed $3 billion program. Merrill Lynch sees the purchase plan as being approximately 8% accretive to earnings.

Applied Materials investors receive a 1.71% dividend. The Merrill Lynch price target for the stock is $28. The Thomson/First Call price target is $26.39. Shares closed Friday at $23.43.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.

Intel reported an inline first quarter, and lowered the forward outlook. Merrill Lynch stays positive on the company and believes there is solid upside potential for the stock. Some analysts think the restructuring can ultimately translate to 0.23 in annual earnings-per-share savings.

Intel investors receive a 3.27% dividend. Merrill Lynch has a $36 price target, and the consensus price objective is $35.66. Shares closed on Friday at $31.69.

Microsoft

This top old-school technology stock gives investors a degree of mega-cap tech safety and has a massive $105 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.

Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. Analysts also maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users.

The top analysts 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 line 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, especially when you factor in the huge revenue potential from the banks, insurance companies and the financial services industry.

The company recently announced a gigantic all-cash, $196 per share offer for LinkedIn. While some on Wall Street gasped at the huge premium paid, Microsoft continues to expand its product lines and cut its dependence on software sales. While it remains to be seen how the fit will be, the analysts like the overall product synergies the deal brings.

Microsoft investors receive a 2.87% dividend, and the forward valuation remains compelling. The Merrill Lynch price target is $65. The consensus target is $57.76, and shares closed Friday at $50.13.

Qualcomm

This top technology stock also resides on the Merrill Lynch US 1 list. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies. It includes Qualcomm’s licensing business, QTL, and the vast majority of its patent portfolio.

Qualcomm Technologies, a subsidiary of Qualcomm, operates, along with its subsidiaries, substantially all of Qualcomm’s engineering, research and development functions, and substantially all of its products and services businesses, including its semiconductor business.

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 (Code Division Multiple Access) technologies. The company 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 signed numerous big licensing deals recently in China that gave the stock a solid boost.

Qualcomm has successfully regained its position at Samsung, as the Galaxy S7/S7 Edge are powered by its Snapdragon 820 processor. The company solved all the problems, such as overheating, that were found in the Snapdragon 810 processor. While smartphone competition has been steep for the company, it has begun entering into the new market segments, such as the Internet of Things, cars, drones and data centers, that will help the company overcome some of the recent product losses and produce profits.

Investors receive a 3.96% dividend. The $65 Merrill Lynch price target compares with the consensus price objective of $57.19 and Friday’s close at $53.55.

All four of these large cap tech leaders offer investors solid entry points at current trading levels. Given the potential for market volatility this summer, investors may want to buy partial positions now and see if the market doesn’t back up some.