Many high-yielding tech stocks lost their luster over the past two years, as rising interest rates drove investors toward the safety of certificates of deposit and T-bills. But with many investors expecting interest rates to stabilize or decline in 2024, it makes sense to consider adding a few of these unloved blue chip dividend plays back to your portfolio.
That's because over the long run, many stable blue chip tech stocks with high yields tend to outperform fixed-income investments with set maturity dates. So as the new year starts, I think it would be smart to buy three dividend plays: Cisco (NASDAQ: CSCO), Texas Instruments(NASDAQ: TXN), and Corning(NYSE: GLW).
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1. Cisco Systems
Cisco is the world's largest networking hardware and software company. The company struggled with supply chain constraints in fiscal 2022 (which ended in July 2022), but it overcame those challenges in fiscal 2023, and revenue growth accelerated again.
Unfortunately, that recovery ended in the first quarter of fiscal 2024 as Cisco's revenue declined sequentially again. Macro headwinds caused the slowdown, driving many of its large enterprise, service provider, and cloud customers to deploy their purchased hardware at a slower-than-expected rate.
Cisco CEO Chuck Robbins admitted that customers were still waiting to deploy "one quarter to two quarters' worth of shipped orders" -- and that the company's revenue would drop 4% to 6% for the full year as its adjusted EPS stays roughly flat. That outlook weighed down the stock, but it now trades at just 13 times forward earnings and pays a high forward dividend yield of 3.1%. That low valuation and high yield should limit its downside potential until the company overcomes near-term challenges.
Cisco is also in the process of acquiring Splunk to expand its networking observability and cybersecurity platforms. That $28 billion deal, which is expected to close in the third quarter of calendar 2024, should reduce Cisco's dependence on traditional networking hardware and increase the stickiness of its software and services ecosystem.
2. Texas Instruments
Texas Instruments manufactures analog and embedded chips for a broad range of customers. These chips aren't as powerful as CPUs or GPUs, but they handle essential tasks such as wireless communications and power management features.
Over the past year, the softness of TI's industrial and communications markets -- which were both heavily exposed to the macro headwinds -- offset the stronger growth in its automotive, personal electronics, and enterprise systems markets. That's why analysts expect its revenue and earnings to decline 12% and 25%, respectively, in 2023.
That cyclical slowdown, along with the company's commitment to ramp up its spending on its long-term transition from 200mm to 300mm wafers, which will reduce the costs of its unpackaged parts by roughly 40% over the long term, spooked the bulls. For 2024, analysts expect its revenue to rise just 1% as its earnings decline another 6%.
That near-term outlook seems grim, but TI has weathered downturns before. It's also committed to returning most of its free cash flow (FCF) to its investors through buybacks and dividends. The company bought back nearly half its shares since 2004 and raised its dividend annually for the past 20 years. Its attractive forward yield of 3.1%, along with a reasonable forward multiple of 25, should limit the downside potential as the macro environment improves and TI upgrades its plants.
3. Corning
Corning is the creator of Gorilla Glass, the chemically hardened glass that shields LCD and OLED screens on smartphones and other devices. It also sells glass substrates for display panels, optical equipment, lab equipment for life science companies, and particulate filters for automakers.
Corning's sales surged 25% in 2021 as the pandemic ended, its core markets stabilized, and it received fresh orders from Apple. But in 2022, Corning's revenue rose only 1% -- and analysts anticipate a 9% decline in 2023. That deceleration was largely driven by the softness of its optical and display panel markets, Apple's slower iPhone sales, and tough currency headwinds. Analysts expect earnings to decline 19%.
But just like Cisco and TI, Corning has survived cyclical downturns before. Corning reduced its share count by nearly 40% over the past decade, and it still looks cheap at 15 times forward earnings. It also pays a high forward yield of 3.7%.
Corning's growth should remain weak throughout the first half of 2024, but sales should bounce back in the second half as the telecom display, semiconductor, smartphone, tablet, and notebook markets recover. Analysts expect the company's revenue and EPS to rise 2% and 17%, respectively, in 2024 -- so it might be a good time to load up on this blue chip stalwart.
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Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple, Cisco Systems, Splunk, and Texas Instruments. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.
