Research Articles

5 Technology Titans Offering Growing Dividend, Capital Appreciation Potential (Part I)

Julie C - Sunday, February 27, 2011
To think that only 50 years ago there was no Intel (INTC) or Microsoft (MSFT) is mind-boggling. Certainly a lot has happened over the past five decades. But as it applies to investing in common stocks, something perhaps even more remarkable is now occurring. Our once, hyper growth technology stocks have morphed into stodgy old growth and income investments. Just like the technology industry itself, the pace at which this has occurred is mind numbing.
Five Technology Titans for Growth and Growth of Income
Fifty years ago investors looking for income would never have considered the leading technology stocks that brought us the information age. However, fast forward to present time, and these once fast growing growth stocks have morphed into dividend paying blue-chip, growth and income stalwarts. This is a mantle that usually was hung on the likes of Procter & Gamble (PG), Johnson & Johnson (JNJ) and General Mills (GIS).
This article will look at five high profile technology companies that as a group would offer a yield higher than the S&P 500. But perhaps even more importantly, they all possess consensus double-digit five-year earnings growth rates. Therefore, this list of blue-chip technology stocks is offered for consideration by investors seeking an increasing income stream with the added possibility for above-average growth. In other words, what distinguishes this group of dividend paying technology large caps is the potential for a faster rate of earnings growth.
The following F.A.S.T. Graphs™ portfolio review is offered as a summary of the potential opportunity these companies represent. Note that these companies are listed in the order of highest potential future returns to the lowest, based on the consensus earnings estimates of leading analysts, with consideration given to the current valuation on each company. Although these numbers are hypothetical in nature, we submit that they represent a solid platform and a beginning point for a more comprehensive research effort.
Microsoft, Intel, IBM (IBM), Texas Instruments (TXN), ADP (ADP)
Click to enlarge

Summary and Conclusions
Most astute investors would point out that the phrase "it's different this time" is one of the most dangerous that could ever be stated regarding investing in common stocks or the stock market. We would agree that the basic principles underlying true investment practices are timeless, and will never change. However, it would be naïve to believe that business and industry are unchanging. As the world has evolved from the industrial age into the computer age or information age, much about how business is conducted has changed.
Most importantly, this change has created a business dynamic that, in its own right, is as revolutionary as the changes in the businesses themselves. We believe the most profound change lies in the velocity of how quickly modern-day businesses can generate and grow revenues, cash flows and earnings. In today's environment, a business can start from virtually zero and rapidly grow into a multibillion-dollar enterprise, almost overnight. Throughout the history of business, never before has this kind of growth occurred or been possible. Technological innovation has been both game changing and disruptive.
As we review the Five Technology Titans covered in this article, we discover an irony regarding their investment merits as common stocks. These once, hyper fast growing, technological super stocks are beginning to behave more like stodgy old dividend producing blue-chip stalwarts. This brings to mind the old adage that the more things change the more things stay the same. Therefore, we believe it's wise for investors to begin thinking about these Technology Titans differently than they have in the past. As their industry has matured, so have their businesses. As their businesses have matured, they are beginning to take on the characteristics of other mature enterprises in more traditional industries.
In part two of this two-part series we're going to look at these Five Technology Titans from the perspective of price correlated to fundamentals. We're going to cover an approximately 20 year period, where the first 8 to 10 years will be reflective of their hyper growth phases, and the remaining years more reflective of the traditional and typical business. We believe there are many lessons that a review of history can teach us.
However, we will not stop history because as investors we can only learn from the past, but we must invest for the future. Therefore, part two will also provide beginning insights into what the future might bring for these now technology industry-leading stalwarts. We believe that the insights that can be gained from such analysis are numerous. In today's low interest rate environment, the opportunity to find solid income generating investments are hard to come by. Technology stocks have traditionally not been part of the search for income, but that has changed. We hope this two-part series establishes a foundation that income seeking investors can build upon.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.


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Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”