Economists think a second wave of the virus will create another deep economic trough resulting from general inactivity, bankruptcies, and unpaid debts. Making matters worse is the fact that the economy typically slows during the winter months.

The seemingly inevitable rise in unemployment combined with reduced economic activity has the potential to send the stock market on a slide this winter and spring. However, if history repeats itself, those who own tech stocks will emerge from the market pullback with their nest egg intact.

This might be the perfect time to shift some of your money to dividend-paying tech stocks such as Broadcom (AVGO), Texas Instruments (TXN), and Maxim Integrated Products (MXIM).

Broadcom (AVGO)

Though AVGO does not receive the same fanfare as other soaring tech stocks, this company is reliable, pays a 3.41% dividend, and provides electronic components that will be in demand regardless of how long the economic contraction lasts. The POWR Ratings show AVGO has an “A” grade in the Trade Grade, Industry Rank, and Buy & Hold Grade components.

AVGO is ranked fourth out of nearly 90 publicly traded companies in the Semiconductor and Wireless Chip industry. Analysts are bullish on AVGO, with a price target of $409. Out of the 24 analysts covering AVGO, 21 consider it a “Buy,” three view it as a “Hold,” and none recommend selling. The company has a dividend yield of 3.5% 

AVGO has a forward P/E ratio of 15.06, meaning it is likely undervalued at its current trading price of $378. AVGO has acquired multiple chipmakers in recent years, ultimately helping the company add customers from numerous sectors, including the wireless space, data centers, IoT, and beyond. Add in the fact that AVGO has had a run-rate of over $12 billion and its dividend looks relatively safe.

Texas Instruments (TXN)

TXN is the wafer fabrication and signal processing integrated circuits company countless businesses rely upon to ensure their electronics function without flaw. Even if demand for TXN’s circuits and other components exceeds production capacity, the company can outsource the additional work to outside foundries. 

TXN’s POWR Ratings are highlighted by “A” grades in the Industry Rank, Buy & Hold Grade, and Trade Grade components. TXN is ranked in the top five out of 86 stocks in the Semiconductor & Wireless Chip industry. The company has a dividend yield of 2.7%.

It is particularly interesting to note that no single customer accounted for more than 10% of TXN’s revenue in 2019. This diversification of revenue bodes well for TXN across posterity. However, one in five TXN sales was made in the auto market in 2019. As long as the automotive market bounces back when economic activity resumes, the fact that 57% of TXN revenue hinges on automotive and industrial customers won’t be nearly as concerning. The rise of 5G combined with TXN chips in driverless vehicles, sets the stage for the company’s stock to move higher as we segue into 2021 and beyond.

Maxim Integrated Products (MXIM)

From data converters to sensors, management components, comparators, and wireless products, MXIM certainly has an expansive production range. All in all, MXIM has more than 70 product lines used by industrial customers, consumers, computing companies, automakers, and others.

The POWR Ratings show MXIM has “A” grades in the Buy & Hold, Trade, Peer, and Industry Rank components. The stock is ranked in the top 15 out of 86 in the Semiconductor/Wireless Chip industry. The company’s dividend yield is 2.34%.

MXIM is in the process of being acquired by ADI, yet that does not mean the company’s share price will decline or stagnate. The deal won’t officially close for another ten months, so there is still ample runway for MXIM to move even higher.

Once the two companies combine, they will have yearly revenue of over $8 billion and annual free cash flow nearing a whopping $3 billion. Furthermore, companies’ combination will hike adjusted earnings per share a year and a half out from the deal’s closing. Add in the fact that the combined companies will generate nearly $300 million in cost synergies by year two of the marriage, and the future looks even brighter.

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AVGO shares were trading at $378.05 per share on Thursday morning, down $2.57 (-0.68%). Year-to-date, AVGO has gained 24.04%, versus a 11.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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