With the world thrown into chaos due to pandemic, high-growth tech stocks have been all the fashion in 2020. However it doesn’t suggest that investing in additional mature dividend-paying corporations is useless. Quite the opposite, some are doing fairly nicely and are nonetheless producing ample earnings to cowl their investor paydays. Three that our Idiot.com contributors assume are buys earlier than the beginning of 2021 are Comcast (NASDAQ:CMCSA), Broadcom (NASDAQ:AVGO), and Lumen Applied sciences (NYSE:LUMN).
A hated (however important) cable firm’s forgotten media enterprise
Nicholas Rossolillo (Comcast): Comcast is not precisely a beloved enterprise. Many customers lament being locked into its Xfinity web companies because of lack of competitors. No matter your emotions on the corporate, although, it is a strong enterprise that gives a contemporary staple. And thanks to a few million web new high-speed web connections this 12 months and practically 800,000 new wi-fi telephone connections (Comcast piggybacks off of Verizon‘s community), Comcast has been a strong stock to personal in 2020. Shares are up 16% 12 months thus far following sturdy third-quarter efficiency.
In actual fact, these rising web and associated connectivity companies are what have saved Comcast’s dividend a stalwart funding even in the course of the pandemic. Shares at the moment present an annual yield of 1.8%, however the shareholder payout ate up solely 30% of the corporate’s free cash move technology (income minus cash working and capital bills) by way of the primary 9 months of 2020. As results from COVID-19 put on off, there’s loads of room for dividend cost will increase within the years forward.
Picture supply: Getty Photographs.
Additional bolstering the case right here is that Comcast’s NBCUniversal phase has been a drag. Film theaters are principally closed, theme parks are closed or open to restricted friends, and the 2020 Summer season Olympics in Tokyo was delayed till 2021. Suffice to say, it has been a tricky 12 months for the media phase. And although NBCU gross sales account for simply over 1 / 4 of complete Comcast income, they nonetheless put a damper on the enterprise total.
I believe that may change in dramatic vogue subsequent 12 months. The film and theme park segments are a guess on the gradual reopening of the worldwide economic system, and the Common Studios Beijing park can also be set to be accomplished the primary half of 2021. Building of that park alone value over $1 billion within the final 9 months, so as soon as completed that is further capital freed up for Comcast.
Put merely, this can be a rock-solid dividend stock that gives a kick of enterprise progress as nicely. Even after strong efficiency this 12 months, shares commerce for an inexpensive 17 occasions trailing 12-month free cash move. I stay a purchaser as 2020 involves an in depth.
Thrilling progress plus a 3.3% dividend yield
Anders Bylund (Broadcom): Semiconductor large Broadcom is a novel beast. The stock provides a dividend yield of three.3%, which is beneficiant in any trade and downright exorbitant within the dividend-averse tech sector. On the identical time, Broadcom is staring down a number of thrilling progress markets comparable to 5G wi-fi networking, linked vehicles, and industrial automation. Broadcom buyers get each a strong dividend stock and a high-octane progress story, all rolled into one ticker.
By way of a mix of strategic acquisitions and its personal analysis efforts, Broadcom has develop into a market-defining title in all of the fields I discussed above, after which some. The expansion story is not new, and Broadcom’s sturdy dividend coverage adopted naturally. Administration’s method to capital allocation requires returning roughly half of Broadcom’s free cash move to shareholders within the type of dividends. That dedication has resulted within the following shareholder-friendly chart over the past 5 years:
AVGO Free Cash Stream knowledge by YCharts
Broadcom is an efficient purchase for pure earnings buyers, an excellent purchase for growth-stock chasers, and a reasonably distinctive alternative for many who need each thrilling progress and wealth-building dividends.
A high-yield dividend stock that might be in for a rebound
Billy Duberstein (Lumen Applied sciences): For these searching for deep value stocks with materials upside, Lumen Applied sciences continues to be wanting enticing, even after the market’s livid current rally. Its dividend yield stands round 9.3% and is roofed about 3 times over by adjusted free cash move.
Lumen trades solely round 3.5 occasions that adjusted free cash move determine — an extremely low-cost price, particularly by immediately’s requirements. The corporate’s irreplaceable international fiber community serves numerous sorts of clients, supplying companies, governments, and customers of all stripes. Nevertheless, Lumen additionally has a portfolio of legacy applied sciences, comparable to landline telephones and older copper-based broadband, that are declining. Throughout COVID-19, its worldwide, wholesale, small enterprise, and shopper divisions all declined as nicely.
Nevertheless, Lumen’s top-line income declines are decelerating. Final quarter, income fell 3.4%, in contrast with 4.8% declines within the year-ago quarter. Moreover, the corporate really grew income in its enterprise phase, the biggest of its enterprise strains. Adjusted EBITDA has remained comparatively steady, as the corporate continues to reap extra synergies from its 2018 acquisition of Stage Three Communications. Certain, these aren’t precisely nice income numbers, however even a stabilization within the income trajectory can be an enormous optimistic for the stock, given its bargain-basement valuation.
In the meantime, as Lumen continues to pay down debt to the tune of about $2 billion per 12 months, the stock ought to profit. Not solely is the corporate chipping away at its giant debt load, however this period of low rates of interest is permitting it to refinance older high-yield debt with new notes at a lot decrease charges. It expects to pay solely $1.64 billion in curiosity expense this 12 months, down from $2.02 billion final 12 months and $2.18 billion in 2018.
Lumen’s excessive debt and income struggles make it a high-risk tock. But CEO Jeff Storey is an completed telecom government, and he is slowly turning round this massive ship, which takes time. If Lumen’s newer fiber merchandise finally allow outcomes to stabilize, that mouthwatering dividend must be stay secure. And if the corporate ever returns to top-line progress, Lumen’s stock may soar.
