2020 has been an exceptional year for the technology industry. The pandemic has propelled cloud computing and AI stocks to record highs. The global tech industry is expected to grow 3.7% this year, according to CompTIA projections, making it one of the fastest growing industries this year. The United States is the largest tech market in the world, with a 32% market share.
However, while investors recognize the tech industry’s potential, it is subject to nerve-wracking volatility, with changing market sentiment and government regulations. The largest companies operating in this industry are currently facing antitrust allegations from regulators around the world. Also, investors are cautious, with some concerns that the companies could see steep declines in sales as the economy reopens in the wake of vaccine deployment.
With the Fed holding interest rates at an all-time low, we believe tech stocks with solid dividend payout histories and growth prospects seem to be better investment bets compared to the industry leaders.
As the U.K. looks at a stringent return to lockdown with the recent discovery of a new strain of COVID-19 with a 70% higher transmission rate, the pandemic tailwind for the tech industry is expected to continue.
As such, companies operating in the tech space, such as Cisco Systems, Inc. (CSCO), Amdocs Limited (DOX), Juniper Networks, Inc. (JNPR) and National Instruments Corporation (NATI)could be solid bets from a total return (dividend income and capital appreciation) perspective.
Cisco Systems, Inc. (CSCO)
CSCO develops internet protocol networking products and services across four categories – Infrastructure platforms, Security, Applications and Other Products. It has strategic partnerships with Internet2 and Tele2 to develop next generation software solutions and connectivity management platforms, respectively.
On December 18, CSCO partnered with Quilt and Digital Alpha to bring TIM Brazil’s Content Delivery Network solution and Open Caching solution to the Brazilian market.
CSCO’s subsidiary, AppDynamics, was listed on Microsoft Corporation’s (MSFT) Cloud Adoption Framework on November 20. With MSFT Azure’s market dominance in the global cloud computing sector, this partnership should bolster CSCO’s market reach and brand recognition. The move comes after AppDynamics expanded its Software-as-a-Service (SaaS) availability across Asia earlier in October.
CSCO’s service revenue has increased slightly year-over-year to $3.34 million in the fiscal first quarter ended October 31, 2020. Revenue from the ‘Security’ segment rose 6% from the prior-year quarter to $861 million. And cash flow from operating activities increased 14% from the year-ago value to $4.10 billion.
CSCO paid $0.36 in dividends for the fiscal first quarter. The company increased its dividend payouts by 2.9% earlier this year. It currently pays $1.44 as dividends annually, which yields 3.2% at the current stock price. It has a dividend payout ratio of 45.5% of the net income. CSCO’s dividends have increased at a CAGR of 11.7% over the past three years.
CSCO’s EPS is expected to rise 6.3% next year, and at a rate of 6.1% per annum over the next five years. The company has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $50.62 billion for the next year indicates a 3.8% rise year-over-year.
CSCO has gained more than 40% since hitting its 52-week low of $32.40 in March.
How does CSCO stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
B for Overall POWR Rating.
It is currently ranked #17 of 53 stocks in the Technology – Communication/Networking industry.
Amdocs Limited (DOX)
DOX develops software and services that cater to the communications, entertainment, and media industries. It offers a variety of products and services that are required during a service provider’s lifecycle. DOX was included in the S&P Dow Jones Sustainability Index for the second consecutive year on December 1.
On December 7, DOX unveiled a digital experience platform in collaboration with Vodafone Romania. This platform aims to digitize the retail industry in a converged communication spectrum, allowing DOX an entry point to this industry. DOX also took multiple steps to increase its foothold in the media industry by adapting to 5G and other technological advancements.
DOX’s revenue has increased slightly year-over-year to $1.05 million in the fiscal fourth quarter ended September 3, 02020. Its net income rose 10.2% from the year-ago value to $134.46 million, while EPS grew 12.2% from the same period last year to $1.01. The company’s cash and cash equivalents balance as of September 30, 2020 was $983.19 million, up 108.5% year-over-year. Cash dividends increased 13.8% from the year-ago value to $0.33 over this period.
DOX pays $1.31 annually in dividends, yielding 1.9% on the current stock price. It has a payout ratio of 527.6%. The company’s dividend payouts have increased at a CAGR of 13.5% over the past three years.
The consensus EPS estimate of $1.14 for the fiscal first quarter ending December 31, 2020 represents a 7.5% rise year-over-year. Moreover, DOX beat the Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $1.08 billion for the ongoing quarter indicates a 3.3% rise from the prior-year quarter.
DOX hit its 52-week high of $77.29 in February but lost 43% to hit its 52-week low of $44.05 in March, due to the pandemic-driven market correction. The stock has gained more than 55% since its March lows.
It is no surprise that DOX is rated “Buy” with an “A” for Trade Grade and a “B” for Buy & Hold Grade. It is currently ranked #27 of 48 stocks in the Software – Business industry.
Juniper Networks, Inc. (JNPR)
JNPR specializes in high performing network products, such as universal access routers, switching products and mist access points to businesses worldwide. It also offers security services and cloud-based platforms to expand its client network.
As recently as earlier today, JNPR was selected by South Korea’s JoongAng group to develop the country’s AI-driven enterprise network. This is a solid entry point for JNPR into the Asian markets.
JNPR has announced a cash tender offer for two of its outstanding senior notes issues. This move will significantly reduce the company’s outstanding debt and interest burden, thereby increasing its investment market acceptance and its profitability.
JNPR’s net revenue has increased 5% sequentially to $1.14 billion in the fiscal third quarter ended September 30, 2020. Net income rose 138% sequentially $145.40 million, while its non-GAAP operating margin rose 280 basis points from the prior quarter to 17.1%. Net cash flow from operations rose 19.2% sequentially to $116.40 million.
The company is scheduled to pay a $0.20 dividend tomorrow. JNPR pays $0.80 in dividends annually, which yields 3.5% based on the current stock price. It has a payout ratio of 51.9%. Its dividend payouts grew at a CAGR of 23.9% over the past three years.
The consensus EPS estimate of $1.65 for next year indicates a 7.1% rise year-over-year. The consensus revenue estimate of $4.55 billion indicates a 2.9% improvement from the same period last year.
JNPR has gained more than 70% to hit its 52-week high of $26.49 in August, since hitting its 52-week low of $15.20 in March.
JNPR is rated “Buy” in our POWR ratings system, with a “B” for Trade Grade, Buy & Hold Grade, and Industry Rank. It is currently ranked #19 in the Technology – Communication/Networking industry.
National Instruments Corporation (NATI)
NATI develops and sells software and systems that provide measurement, automation and control services to engineers and scientists internationally. It has a designated NI education platform, as well as a maintenance services segment. The company’s products have applications in consumer electronics, commercial aerospace, and in the telecommunications industry.
On December 15, NATI’s subsidiary joined the Open Manufacturing Platform consortium, where industry leaders seek to create a “Manufacturing Reference Architecture” framework. Led by established market players like BMW MSFT, ZF, and Bosch, the collaboration could create a base open-source ecosystem laying the foundation for state-of-the-art manufacturing technologies.
The company partnered with Electro Rent earlier in November, to rent NATI’s automated test and measurement solutions across North America next year.
NATI’s revenue from the “Software Maintenance” segment rose 9.3% year-over-year to $38.47 million in the third quarter ended September 30, 2020. Dividends declared rose 4% from the year-ago value to $0.26 over this period. And cash flow from operating activities increased 34.1% from the same period last year to $138.92 million for nine months ended September 30, 2020.
The company pays $1.04 as dividends annually, which yields 2.4% at the prevailing stock price. NATI has a payout ratio of 90.7% of net income. Its dividend has increased at a CAGR of 7.7% over the past three years.
NATI’s EPS is expected to rise at a rate of 5.8% per annum over the next five years. The consensus revenue estimate of $1.36 billion for next year indicates a 7.4% rise year-over-year.
NATI has gained more than 110% since hitting its 52-week low of $20.42 in March.
NATI’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and a “B” for Buy & Hold Grade. It is currently ranked #29 in the Software – Business industry.
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CSCO shares were trading at $44.88 per share on Monday afternoon, down $0.56 (-1.23%). Year-to-date, CSCO has declined -3.21%, versus a 15.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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