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Which Old-School Tech Dividend Stocks Are Most Buyable?

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Old-school tech companies may finally have a chance to catch up as higher rates take a bit of a jolt out of the disruptive small-cap innovators. Let’s check in with Wall Street to see where such high-yielding tech titans stand.

New-age tech and other unprofitable growth companies have seen their share prices implode over the past year. It’s been brutal for new investors who failed to diversify their portfolios beyond the exciting plays that seemed to only surge higher in 2021.

The days of easy money are coming to an end. Still, many old-school tech companies with solid cash flows have been dragged lower amid the latest tech carnage.

Though many higher-yielding tech companies have challenges of their own, they seem less scary to scoop up amid the Fed’s tightening. In this piece, we used TipRanks’ Comparison tool to compare three old-tech dividend payers to see which offers the best bang for one’s buck.

Cisco (CSCO)

Cisco stock is in the midst of a nasty slump, now down around 32% from its peak just north of $60 per share. The $180 billion network equipment maker looks to be flirting with 2020 lows again. Though Cisco has endured serious supply-side constraints, its focus on software and services could help the firm expand upon its margins over the long haul.

For now, Russia’s invasion of Ukraine and COVID lockdowns in China have created a perfect storm of headwinds. As the digital transformation continues, though, demand for Cisco’s hardware and software is unlikely to wane for too long a duration.

Looking ahead, an economic slowdown could take a bite out of demand. Pending a hard-landing from the Fed, though, enterprise spending on Cisco products may not plunge nearly as drastically as some expect.

At the end of the day, Cisco is an old-time company with staying power. At writing, the stock trades at 15.2 times trailing earnings and 3.5 times sales, with a dividend yield of 3.5%.

Wall Street is staying bullish on the name, with the average Cisco price target of $52.17 implying 20.2% upside.

IBM (IBM)

IBM is another slumping old-school tech company that’s seen its dividend yield swell over the years. The stock yields 4.89% after its latest slump. Unlike most other tech firms, IBM has held its own rather well in 2022. That’s because it’s been a multi-year slog for IBM, which has failed to impress investors seeking cutting-edge innovation.

While IBM is still innovating, it’s at risk of falling even further behind the competition. Undoubtedly, the 5%-yielding dividend is a hefty commitment that takes away from R&D. With the low-growth Kyndryl now spun off, IBM has a heavy weight off its shoulders. However, it’s unclear as to how the long-time tech titan can get its growth groove back.

IBM’s business clientele has proven sticky over the years. Still, we could reach a point where the high switching costs are worth enduring to enjoy the innovations provided by IBM’s cloud peers.

As a $121 billion behemoth, IBM is doing its best to pivot. However, it’s hard to do so with so much bloat built up over the years. The Kyndryl spin-off is a critical first step towards getting back on track. That said, switching costs seem to be falling across the industry, with software-as-a-service cloud companies that could move to usage-based pricing from the subscription-based one that’s commonplace today.

Wall Street remains bullish on IBM, with the average IBM price target of $152.11, implying 12.7% upside.

Intel (INTC)

Intel is the chip giant that’s lost its lead over the years. Like most other old-tech companies with huge dividend yields (Intel yields 3.95% at writing), the company needs to balance rewarding shareholders and innovation efforts. While Intel has a mighty dividend and a plan to return to the top, I’d be much more comfortable if the firm slashed its payout and focused more of its capital on innovation.

The chip space is wildly competitive, and once you lose the lead, it can be hard to get it back. Though I think Intel can meet the goals laid out in its multi-year plan, it’s worth noting that Intel’s rivals are also getting stronger over the timeframe.

As chips get faster and cheaper with time, Intel could be at risk of discounting, and that could impact margins negatively. Big tech firms think they can produce their own chips. As they cut Intel out of the equation, Intel seems like an underdog with lousy odds.

Betting on an underdog comes with its perks, like the higher dividend and a rock-bottom multiple. At 1.9 times sales and 6.1 times trailing earnings, Intel is a deep-value stock with not a lot of expectations baked in.

Turning to Wall Street, analysts are bullish, with the average Intel price target of $51.19 implying 38.44% upside.

Conclusion

Betting on tech firms that have fallen behind the curve can be tricky. As rates rise, their small, unprofitable rivals could begin to slow in pace. Higher rates are detrimental to small, unprofitable tech. However, for profitable firms that have fallen behind, higher rates could bring forth an opportunity to catch up.

Of the three old-school tech titans in this piece, Wall Street seems most upbeat on Intel.

Disclosure

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