Technology

Merrill Lynch Bullish on 4 Large Cap Dividend Technology Stocks

Lee Jackson

Published: July 15, 2016 8:35 am

Last Updated: January 13, 2020 5:41 am

With the market bursting through to all-time highs, there is always that sense of investor concern over what to do next. One good idea is to look at the sectors that are full of good companies, but that have not been the leaders. Not surprisingly, utilities, telecom and consumer staples have led the market higher as they all serve as bond proxies. Since May of 2015, however, technology is just flat, and it may be offering investors among the best entry points in years.

We screened the Merrill Lynch research database for large cap technology stocks that are rated Buy, pay a dividend greater than the 30-year U.S. Treasury, and are among the largest in capitalization. We found four that make very good sense now for aggressive growth accounts.

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.

The company’s 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 3.6% dividend. The Merrill Lynch price target for the stock is $15, and the Thomson/First Call consensus estimate is $14.55. The shares closed most recently at $13.80.

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 2.95% dividend. Merrill Lynch recently raised the price target to $40 from $36. The consensus price target is $36. Shares closed Thursday at $35.20.
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 2.7% dividend, and the forward valuation remains compelling. The $65 Merrill Lynch price target compares to the $60 consensus target and Thursday’s close at $53.74.

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 includes the licensing business, QTL, and the vast majority of its patent portfolio. Its subsidiary Qualcomm Technologies operates substantially all of Qualcomm’s engineering, research and development functions, as well as substantially all of its products and services businesses, including its semiconductor business, QCT. The company recently settled with the SEC over the hiring of relatives of Chinese officials, which removed an overhang on the stock.

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 are paid a 3.9% dividend. The Merrill Lynch price target is $65. The consensus price objective is $59. Shares closed Thursday at $54.88.

Trading below 52-week highs, offering much better dividends than long Treasury debt, and possibly poised to present good second-quarter earnings, these four companies make good sense for investors looking for total return.