2 Electronics Dividends to Buy and 1 to Avoid
Talk about an industry where you can literally plug in to profits.
The electronics industry really surprised me when I ran an initial screen using the Motley Fool CAPS Screener for dividend-paying companies by yielding 54 of them! In no way was I expecting there to be that many dividend-paying companies, and the chore of weeding them down was daunting. With stocks having been gored by the market for more than a week now, I see two particular companies standing out in this sector as companies you can trust, while another could lead you down the wrong path.
Intel (NAS: INTC) : trust it
Apparently, the demise of the personal computing sector has been greatly exaggerated. Intel's most recent quarterly report detailed growth in the PC segment, as well as continued strength from the corporate sector -- Intel's bread and butter as of late. Strength in notebooks and netbooks also helped fuel Intel to a greater-than-expected earnings beat.
What hasn't been lost over the years is Intel's generosity when it comes to shareholders. The company backs what it does with its own wallet by purchasing shares and paying out a now rapidly growing quarterly dividend. During the quarter, Intel repurchased 93 million shares. Now privy to a dividend yield north of 3%, shareholders have witnessed an 805% rise in Intel's quarterly distribution over the past decade. Right now the hype is all about Advanced Micro Devices (NYS: AMD) and its new line of Fusion chips, but I can think or a reason or 10 to stay away from AMD. Intel is a tried-and-true winner in this sector, and you can usually bank on its returns.
ARM Holdings (NAS: ARMH) : trust it
If this company had a motto it, would be "In tablet we trust!" ARM Holdings chips provide the architecture that is the backbone of every Apple smartphone and tablet. The company also recently inked a deal with Microsoft (NAS: MSFT) assuring that future versions of Microsoft's flagship Windows operating system will run on ARM chips. Even loftier than landing these two juggernauts, the company two months ago claimed that it's targeting a 50% mobile PC market share by 2015. With only 17 million tablets produced in 2010, this may not seem like a lot, but with the company projecting that more than 215 million will be shipped by 2015, ARM could be sitting on a huge cash cow.
Consider this: ARM has turned a profit in every year for the past decade! As a result, the company's free cash flow has ballooned nearly fourfold from a decade earlier. This extra cash could translate into a big quarterly dividend increase in the future. Right now its 0.7% yield may not look like much, but its rich history of profitability should translate into lofty benefits for shareholders.
Garmin (NAS: GRMN) : avoid it
Invest in Garmin, and it could direct you off the path to profits. The leader in global positioning technology continues to bring in surprisingly healthy profits for what I think is a dying and crowded technology field. With consumers able to use free GPS software on their smartphones from the likes of Apple or Google, it appears that Garmin's days of relevance are numbered -- and its dividend might be as well.
Since revenue peaked in 2008, Garmin shareholders have witnessed a slow but steady contraction. Not only has revenue been affected, but also the company's annual dividend in 2011 was nearly halved, going from $1.50 to $0.80. This probably won't be the last of the downward pressure on Garmin's payout as consensus estimates continue to weaken. Here's my advice to shareholders: Drive right by and recalculate!
Dividend yields don't always have to be north of 4% to show promise. Intel and ARM Holdings are sitting on cash-generating technologies and look poised to push their quarterly payouts higher, as evidenced by their rising free cash flow. Garmin, on the other hand, looks like a dying technology in desperate need of a miracle.
At the time this article was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong The Motley Fool owns shares of Apple, Intel, and Google and has purchased calls on Intel.Motley Fool newsletter services have recommended buying shares of Apple and Google, as well as creating a bull call spread position on Apple, a diagonal call position on Intel, and an iron condor position on Garmin. Try any of our Foolish newsletter servicesfree for 30 days.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policythat firmly believes that Johnny-Five is alive!
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