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Technology isn’t usually a space investors associate with dividends. While this has been the case historically, dividend payments have been cropping up in recent years. Although many companies in this space still don’t pay dividends, there are some that have solid distributions on both an absolute and a relative basis.

We screened the Computer Software, Computers and Peripherals, E-Commerce, Electronics, Entertainment Technology, Foreign Electronics, Internet, Semiconductor, and Telecom Equipment Industries for companies in the technology area that pay material dividends. First, we looked for companies with dividend yields above 1.5% and then, to help ensure the dividends were sustainable, we limited the results to those corporations with long-term debt as a percentage of total capital below 25%.

The screen, simple as it is, netted 32 companies (see the list below) with yields ranging from just about 1.5% to above 5%. Long-term debt-to-total capital ratios ranged from nil to near the 25% limit. There was no particular correlation between debt and distribution. Of note, however, is the fact that yields drop quickly toward the market average—not surprising given the nature of the industry. We have chosen to highlight Broadcom Corporation (BRCM) and Ericsson ADR (ERIC) for their solid dividend payments and appealing capital gains potential.

Broadcom Corporation

Broadcom is a leading designer of semiconductors for wired and wireless communication devices. Its products deliver voice, video, data, and multimedia connectivity in the home, the office and the mobile environment. Functions of its semiconductors include complex signal processing, converting digital data to and from analog signals, and switching and routing packets of information over IP-based networks. The company operates in three segments:

  •   Broadband Communications (Solutions for the Home, 27% of 2012 revenues) - Complete solutions for cable, xDSL, fiber, satellite and IP broadband networks to enable the connected home, including set-top-boxes and media servers, residential modems and gateways, femtocells and wired home networking solutions.

  •   Mobile & Wireless (Solutions for the Hand, 48%) - Low-power, high-performance and highly integrated solutions powering the mobile and wireless ecosystem, including Wi-Fi and Bluetooth, cellular modems, personal navigation and global positioning, near field communications (NFC), Voice over IP (VoIP), multimedia and application processing, and mobile power management solutions.

  •   Infrastructure & Networking (Solutions for Infrastructure, 23%) - Highly integrated solutions for carriers, service providers, enterprises, small-to-medium businesses and data centers for network infrastructure needs, including switches, physical layer (PHY) and microwave devices for local, metropolitan, wide area and storage networking; switch fabric solutions, high-speed ethernet controllers, security and embedded processors.

Broadcom’s networking business continues to perform well. Sales of chipsets used in telecom infrastructure have had a nice run over the past several quarters. This can be attributed to high demand for data center products, which make up about 30% of this unit’s sales. We believe growth will continue, thanks to further penetration of data centers and cloud computing as well as new inroads with international players like Huawei and ZTE.

Broadcom remains a small player in baseband chipsets, but this may change in 2014. Research firm Strategy Analytics recently reported that BRCM placed fifth in terms of cellular modem sales in the second quarter, with less than a 5% share. This compares to the market leader, Qualcomm (QCOM) with a 63% slice of the baseband pie. Broadcom’s recent acquisition of LTE chipset-maker Renasas may help it capture some of this share in 2014. In order to accomplish this, it will have to compete with others looking to gain traction in the space, including Intel (INTC - Free Intel Stock Report), Marvell (MRVL), MediaTek, and Spreadtrum. Although Qualcomm’s near dominance in the LTE space will likely wane due to OEM’s desire to diversify their supply chain, Broadcom will have an uphill battle for market share in this competitive tech market.

In addition to the potential for further earnings growth from the still-strong smartphone chipset market, Broadcom pays a respectable 1.65% dividend which may provide added incentive for those investors looking to gain exposure to the tech market.

Ericsson ADR

Ericsson was established in 1876, and since then has evolved into is a leading global provider of networking infrastructure, broadband, and other telecommunications equipment. The company claims “when you make a call or browse the internet on your handset, tablet or mobile PC, you will likely use one of our solutions”. Indeed, 40% of the world’s mobile traffic runs through its gear, which includes 2G, 3G, and LTE base stations. In 2012, Ericsson boasted #1 positions in base stations and telecom equipment services. Other significant markets it operates in are IP transport fiber, and IP Edge routers. Ericsson mainly provides services, software, and infrastructure to the world’s major telecom service providers, and fluctuations in those entities annual capital expenditure can have a material impact on ERIC’s earnings performance.

Earnings at Ericsson remain in recovery mode. Wider margins have been a driving force behind the improvement, as the drag from network modernization projects in Europe, which has been a challenge since 2011, is now beginning to ebb. Still, the company’s top-line performance leaves something to be desired. Revenues even declined slightly year over year in the September period, due to headwinds from foreign exchange and weakness in India and Northeast Asia (e.g., China and Japan). Moreover, the company is likely facing a bit of a bumpy stretch in North America, its largest market (about one quarter of sales) and the key growth driver over the past year or so, now that two large mobile broadband coverage projects peaked in the first half of 2013. On the positive side, Ericsson indicated that the pace has picked up in Europe, as service providers there step up investments in more advanced wireless networks. Nonetheless, market support for this equity may well be tested if a return to top-line growth is slow to materialize.

Meanwhile, income-oriented investors will likely want to take a closer look here as the current dividend yield is a strong 3.74%.

     

     

Company

Ticker

Industry Name

% Debt/Capital Latest Qtr

Dividend Yield

STMicroelectronics

STM

Semiconductor

9.75

5.01

Compuware Corp.

CPWR

Computer Software

1.3

4.43

Intersil Corp. 'A'

ISIL

Semiconductor

0

4.2

Canon Inc. ADR

CAJ

Foreign Electronics

0

4.19

Comtech Telecom.

CMTL

Telecom. Equipment

0

3.76

Ericsson ADR

ERIC

Telecom. Equipment

0

3.74

Maxim Integrated

MXIM

Semiconductor

17.28

3.69

Intel Corp.

INTC

Semiconductor

19.18

3.5

Cisco Systems

CSCO

Telecom. Equipment

18.02

3.12

Microsoft Corp.

MSFT

Computer Software

13.4

2.99

CA, Inc.

CA

Computer Software

23.75

2.99

Taiwan Semic. ADR

TSM

Semiconductor

0

2.91

Philips Electronics NV

PHG

Foreign Electronics

0

2.87

Analog Devices

ADI

Semiconductor

15.54

2.68

Daktronics Inc.

DAKT

Entertainment Tech

0

2.49

AVX Corp.

AVX

Electronics

0

2.49

Linear Technology

LLTC

Semiconductor

0

2.34

Xilinx Inc.

XLNX

Semiconductor

0

2.21

NVIDIA Corp.

NVDA

Semiconductor

0.39

2.17

Konami Corp. ADS

KNM

Foreign Electronics

0

2.17

Apple Inc.

AAPL

Computers/Peripherals

12.09

2.16

Micrel Inc.

MCRL

Electronics

0

2.05

Tessera Technologies

TSRA

Semiconductor

0

2.01

Qualcomm Inc.

QCOM

Telecom. Equipment

0.05

1.91

Avago Technologies

AVGO

Semiconductor

0.04

1.9

Altera Corp.

ALTR

Semiconductor

12.23

1.87

TE Connectivity

TEL

Electronics

22.64

1.83

Marvell Technology

MRVL

Telecom. Equipment

0

1.74

Broadcom Corp. 'A'

BRCM

Telecom. Equipment

14.97

1.65

EMC Corp.

EMC

Computers/Peripherals

19.78

1.6

Logitech Int'l

LOGI

Computers/Peripherals

0

1.57

Hitachi, Ltd. ADR

HTHIY

Foreign Electronics

0

1.51

     

At the time of this article's writing, the author did not have positions in any of the companies mentioned.