Equity markets have wiped away billions of dollars in investor wealth over the past several weeks as the COVID-19 pandemic has driven stock prices down. The broader market sell-off increased the dividend yield of several stocks, making them attractive for income investors as bond yields are touching record lows…
But not every stock with a high yield is a good investment. Investors also should look for the potential for capital appreciation once the markets rebound. Here are five tech stocks that have a significantly higher yield than the S&P 500‘s average and that I think are worth watching.
The coronavirus pandemic has driven shares of telecom giant AT&T (NYSE:T) to multiyear lows. AT&T has shut down over 40% of its stores, while its Warner Bros. movie studio is likely to experience a massive hit due to the current situation causing delays in production and the closure of movie theaters.
However, its telecom business is somewhat recession-proof as customers are unlikely to cancel internet and mobile subscriptions even in an economic downturn. This should ensure a steady stream of cash flows for the company. AT&T also expects to benefit from its moves in streaming segment and the upcoming shift to 5G.
In case recession fears come true, investors may be worried about AT&T’s huge net debt balance of $151 billion. However, the dividend looks safe given that the company in January forecast free cash flow around $28 billion in 2020,. It spent close to $15 billion in dividend payouts last year, which would mean a dividend cut is unlikely if it hits its free cash flow estimate.
AT&T recently suspended a $4 billion share buyback program in order to keep paying dividends. The stock’s forward yield stands at a juicy 6.9%.
Another telecom giant that is a dependable pick right now is Verizon (NYSE:VZ). As people are largely staying at home, they are using their phones and home internet more. In a recent interview with CNBC, Verizon CEO Hans Vestberg said the company’s web traffic in mid-March was up 20% week-over-week due to an increase in demand for streaming and gaming services. Continued demand should hold Verizon in good stead, helping it overcome the current economic downturn.
Verizon’s net debt of $109 billion will make some investors nervous. Further, last month Verizon increased its capital expenditure forecast by $500 million and expects to spend between $17.5 billion and $18.5 billion for 5G rollout and network upgrades in 2020, according to a Reuters report.
However, with a payout ratio of about 50% and steady cash flow, Verizon is one of the most dependable technology stocks. Verizon stock is trading at a forward yield of 4.3% and has increased dividend payments every year since 2006.
Shares of semiconductor chip maker Broadcom (NASDAQ:AVGO) have also been impacted by the coronavirus outbreak. The stock lost over 50% as it fell from a record high of $331.58 on Jan. 24 to a 52-week low of $155.67 on March 18.
Broadcom is a major Apple supplier, and its shares were driven lower by the latter’s confirmation of lower-than-expected sales in the March-ended quarter, as well as lockdowns in China.
Broadcom supplies wireless chips for several smartphone manufacturers and smartphone sales are likely to experience a massive decline due to lower consumer spending and this led to Broadcom’s withdrawing its forecast for the April-ended quarter.
However, COVID-19 is likely to be only a near-term headwind. Broadcom investors have enjoyed massive dividend growth in…
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