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Dividend Stocks: What to Buy amid Falling Treasury Yields

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Aug. 22 2019, Published 9:29 a.m. ET

Currently, the global market is a mess. Tariff concerns and the Huawei ban disrupted many tech giants’ business. The Fed slashed interest rates last month for the first time since 2008. Experts anticipate at least one more cut before the end of the year. Also, bond yields are at historic lows. The 30-year US Treasury note is at an all-time low. On Wednesday, the two-year yield rose above the ten-year yield. The yield curve inversion gives a recession signal. Amid a volatile market, anxious investors abandon higher-growth tech stocks. As a result, investors are interested in dividend stocks.

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Why go for dividend stocks?

Now, investors want more conservative dividend stocks in defensive sectors like consumer staples and utilities. However, there are many solid stocks in the semiconductor industry. The stocks offer income and growth potential.

Investors can buy Broadcom (AVGO), Qualcomm (QCOM), and Intel (INTC) semiconductor stocks. They’re high-yield dividend stocks. Overall, the stocks will likely generate good returns despite global uncertainties.

Broadcom has a dividend yield of 3.69%

Currently, Broadcom is struggling with sluggish sales amid falling demand for chips. The ongoing US-China trade war and concerns about the US trade ban took a toll on the company. Broadcom slashed its revenue guidance for fiscal 2019 by $2 billion to $22.5 billion. Weak smartphone demand will likely continue to impact the company’s wireless chip business.

As a result, Broadcom wants to diversify its business and expand in the software space. Last year, Broadcom purchased software company CA Technologies. In August, Broadcom announced the acquisition of Symantec’s (SYMC) enterprise security unit for $10.7 billion cash. Previously, the companies parted ways. Broadcom expects the purchase to add a revenue run rate of over $2 billion annually. The deal would also generate cost synergies of $1 billion in the first year after the acquisition. Notably, Symantec plans to return 100% of the sale proceeds in the form of special dividends to shareholders.

Broadcom has a high dividend yield of around 3.69% at the closing of $287.5 on Wednesday. The company’s annual dividend of $10.6 per share represents a dividend payout ratio of 58.6%.

Broadcom stock has returned 14.07% YTD (year-to-date). The stock has a market capitalization of $114.4 billion. With the deals and high dividend yield, Broadcom seems to be in a better position. The stock also looks attractive for long-term investors.

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Qualcomm has a yield of 3.23%

Qualcomm is known for its high dividend yield. The company has been growing its dividend for the past eight years due to strong free cash flows. Currently, Qualcomm stock is trading at $76.7 as of Wednesday. The stock has an annualized dividend of $2.48 per share, which equates to a dividend yield of 3.23%. The company has a dividend payout ratio of 79.5%.

Qualcomm stock has gained 37.6% YTD. The company has a market cap of $93.2 billion.

Qualcomm earns a significant portion of its profits from licensing. Recently, Qualcomm signed a patent licensing deal with South Korean company LG Electronics. The five-year licensing agreement would give LG access to Qualcomm’s chips for its 5G smartphones. LG could also use the chips for its 3G and 4G mobile devices. The company has already launched one 5G smartphone called “V50 ThinQ” powered by Qualcomm Snapdragon processors. LG will launch its upcoming V60 smartphone next month. The smartphone uses Qualcomm chips.

Qualcomm’s deal with LG followed Apple’s (AAPL) settlement deal with the chipmaker in April. The companies agreed to a multiyear chip supply agreement and a six-year patent license agreement, which also includes a two-year extension option.

Qualcomm is the top 5G chip supplier. The company will likely gain more licensing deals in 2020 amid the rollout of 5G smartphones. We expect the company to remain in high demand in 2020. Companies will likely want to grab the fast-growing 5G market.

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Intel’s yield is at 2.67%

Intel, one of the leading semiconductor companies, has been hit by the ongoing US-China trade war and semiconductor downcycle. The company has been dominating the data center processor market. However, Intel is losing its share to Advanced Micro Devices (AMD). Last year, Intel started facing supply issues, which gave AMD a chance to emerge as the winner. AMD provides stiff competition. The company launched it 7nm EPYC Rome server processor. Intel plans to launch its “Cooper Lake Xeons” in the first half of 2020 with 14nm processors.

Last month, Intel sold its smartphone chip business to Apple. The company wants to focus on 4G and 5G modems. Intel wants to grow its other applications like personal computers and Internet-of-Things devices. The company raised its third-quarter revenue projections. Intel witnessed strong demand for Xeon chips. The company expects the PC supply-demand balance to normalize in the second half of 2019.

Despite the near-term issues, Intel has regularly paid dividends to its shareholders. The company hiked its annual dividend for the past four years due to substantial cash reserves. Intel has doubled its dividend twice. The company even boosted dividends at irregular intervals from 2005 through early 2010. Intel has an annualized dividend of $1.26 per share, which equates to a dividend yield of 2.67%. The company has a dividend payout ratio of 30.3%.

Healthy outlook, upcoming processors, and high dividends make Intel an attractive buy for investors.

Therefore, income investors who want consistent cash flow from their investments should consider these three high-yield dividend stocks for the long term.

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