It's next to impossible to keep up with every dividend stock. After all, around 3,000 U.S. stocks pay dividends. But this large number means that you could be missing out on some great dividend stocks to add to your investment portfolio.
Some investors don't think about technology stocks that pay dividends, for example. Others might skip over international stocks. Some could miss out on biotech stocks with solid dividends. However, there are terrific dividend stocks in each of these categories. Here's why Cisco Systems (NASDAQ: CSCO), Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM), and Amgen (NASDAQ: AMGN) are top dividend stocks that you might be overlooking.
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Cisco Systems made its mark in the networking hardware business. The technology giant remains a leader in this business, but Cisco is now shifting gears to focus more heavily on software and services. It hopes to generate over half of its revenue from these two areas by 2020.
Income-seeking investors should love Cisco's dividend yield, which now stands at 3.7%. The company first initiated its dividend program in 2011 and has increased the dividend each year since then. Cisco currently uses only 54% of earnings to pay out dividends. That means that the technology company should be in good position to keep its streak of dividend hikes going.
Investors will probably also like Cisco's valuation. The stock trades at less than 13 times expected earnings. This reflects a considerable discount compared to many large-cap stocks.
There is one area of concern, however. Cisco's transition to a subscription software model will probably dampen overall revenue growth over the next three to five years to just 1% to 3% annually. The good news, though, is that Cisco should emerge as a stronger company poised for higher growth over the long run following this transition.
Taiwan Semiconductor Manufacturing Co.
Taiwan Semiconductor Manufacturing Co. (TSMC) manufactures semiconductors for many of the world's leading chipmakers. It ranks as the largest semiconductor foundry in the world, with an estimated 56% market share.
The company has paid annual cash dividends since 2003. Over the last three years, TSMC has significantly boosted its dividend payments. As a result, the dividend now yields 3.32%. With a payout ratio of less than 45%, the company appears to be in great shape to continue increasing its dividend.
In addition to having a solid dividend, TSMC stock also claims an attractive valuation. Shares currently trade at less than 15 times expected earnings. With earnings growth of 15% annually expected over the next five years, TSMC's valuation looks even more appealing.
Growth could be even better than predicted. It has been reported that Qualcomm could use TSMC to build its Snapdragon stand-alone cellular modems. If these reports prove true, this solid dividend stock could be an even better growth stock opportunity than it already is.
Amgen is one of the biggest biotechs. The company's products include autoimmune disease drug Enbrel and Neulasta, a bone marrow stimulant that helps protect cancer patients from developing infections after receiving chemotherapy.
The company initiated its dividend program in 2011. Amgen has increased its dividend each year since then, with the dividend more than quadrupling during the period. Its yield now stands at 2.66%. The biotech uses roughly 39% of earnings to fund the dividend, indicating plenty of flexibility for future dividend hikes.
Amgen stock trades at 13 times expected earnings. However, low earnings growth expectations actually make the stock appear to be overvalued at the current price, with a high PEG ratio of 3.29.
Those future earnings estimates could turn out to be overly pessimistic, though. Amgen has around $38 billion in cash, cash equivalents, and marketable securities as well as a strong cash flow. I expect the big biotech will use some of this cash to fund acquisitions and licensing deals that should improve its growth prospects.
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