No sector is more integral to the global economy than technology, and it remains the single best starting place for investors seeking big returns. If you’re surveying technology trends that are likely to have a big impact across industries this decade, most industry watchers would have 5G near the top of the list.
This next leap forward in network technology will bring about upload and download speeds that are dramatically faster than those offered by current wireless networks. This will usher in major advances in fields, including robotics, self-driving cars, and augmented reality, among many others. Investors looking for high-yield tech stocks that have significant exposure to 5G should consider Verizon (NYSE:VZ), Broadcom (NASDAQ:AVGO), and China Mobile (NYSE:CHL)
Verizon operates America’s largest and best-rated wireless network, according to IHS Markit’s RootMetrics division. The stock trades at roughly 12 times forward earnings estimates, with a 4.1% dividend yield and 13-year streak of annual payout growth.
Most of the company’s revenue comes from subscription packages, which makes its revenue both relatively predictable and resilient amid potential economic shake-ups. The business should benefit as internet communications become increasingly central to everyday life. Its massive subscriber base helped it generate $16.6 billion in free cash flow (FCF) over the trailing 12-month period, and the cost of covering its forward dividend distribution comes in at roughly 60% of that figure. That’s a safe payout ratio that will allow the company to continue delivering slow but steady dividend growth while also investing in the future of the business.
Building out Verizon’s 5G network will be cost-intensive in the near term, and it won’t happen overnight. But the transition should pave the way for more pronounced sales and earnings growth by helping Verizon better distinguish its mobile wireless offerings from budget-priced competitors and extend its high-speed home internet into new markets.
Broadcom is a semiconductor company that designs and manufactures communications-focused chips. The company makes chips for broadband modems and network infrastructure, and supplies wireless and radio-frequency chips for smartphones from companies like Apple and Samsung. Broadcom has also used acquisitions to make a push into infrastructure (with CA Technologies) and security software (with Symantec).
Broadcom’s shares trade at roughly 13 times forward earnings and sport a dividend yield of 4.2% as of this writing. What’s more, the company has been delivering rapid payout growth. It announced its most recent hike — an impressive 22.6% — in December, and the chipmaker has boosted its dividend by over 800% over the last five years. The company now has nine consecutive years of payout growth.
2020 is the year that 5G handsets start to hit the market in significant numbers, which bodes well for Broadcom. It should also see a long-term tailwind from data-center chips. It has a healthy balance sheet to fund additional acquisitions if it chooses to go in that direction. And the potential for more big payout increases and stock buybacks looks even better when considering that the cost of covering its current dividend comes in at around…
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