Don’t Underestimate These 3 “Mature” Tech Stocks

Tech investors often flock toward high-growth companies that trade at premium valuations. However, investors shouldn't underestimate the power of "mature" tech stocks that pay reliable dividends while trading at lower valuations. Let's examine three of those stocks, all of which outperformed the S&P 500 this year.


Cisco (NASDAQ: CSCO) is the world's largest manufacturer of network routers and switches. Those are slow-growth businesses, but Cisco has been pivoting away from those products by expanding its software applications and cybersecurity businesses.

Cisco's revenue growth accelerated over the past year thanks to stronger sales of its networking hardware for enterprise campus and data center customers, rising demand for its collaboration and communications software, and the expansion of its cybersecurity portfolio through acquisitions.

Cisco bundles its hardware and software services together to widen its moat against rivals across multiple markets. That strategy helps Cisco rely more on recurring revenue, which accounted for nearly a third of its top line last quarter.

Wall Street expects Cisco's revenue to rise 4% this year, while big buybacks (supported by its repatriation of overseas cash) and cost-cutting synergies could boost its earnings by 15%. Those are solid growth rates for a stock that trades at just 14 times forward earnings.

Cisco also pays a forward dividend yield of 2.9%, and it's raised that payout annually for seven straight years. It spent just 47% of its free cash flow (FCF) on its dividend over the past 12 months, and its repatriated cash should support plenty of future dividend hikes.

Texas Instruments

Texas Instruments (NASDAQ: TXN) produces analog and embedded chips for a wide range of markets, but most of its growth comes from the automotive, industrial, and consumer electronics markets. TI has two main advantages -- it produces low-cost, high-margin chips (thanks to its shift from 200mm to 300mm wafers), and its portfolio is so well diversified that it usually offsets a slowdown in one industry with growth in another.

Analysts expect TI's revenue to rise 8% this year, supported by content share gains in high-end smartphones, connected cars, and industrial machinery. Its earnings are expected to grow 30% as its 300mm process boosts its margins and buybacks buoy its EPS growth. Those are solid growth rates for a stock that trades at just 18 times forward earnings.

TI is also a very shareholder-friendly company. It reduced its share count by 43% since 2004 and has raised its dividend annually for 14 straight years. The chipmaker currently pays a forward dividend yield of 2.3%. TI often says that it's committed to returning "all" of its FCF to shareholders via dividends and buybacks, although that exact definition fluctuates from year to year. Over the past 12 months, TI spent 41% of its FCF on dividends and another 56% on buybacks.


HP (NYSE: HPQ) is the biggest PC maker in the world. Many have claimed that smartphones and tablets would kill the PC market, yet IDC recently reported that PC sales rose nearly 3% annually during the third quarter -- marking the strongest growth in six years.

HP has remained at the top of that market with its well-received ultrabooks, 2-in-1 devices, and gaming PCs. That's why its Personal Systems (PC) revenue, which accounted for 63% of its top line, rose 14% annually last quarter. High sales and lower commodity costs also boosted the unit's operating margin.

HP's Printing unit, which generated the remainder of its revenue, also continues to grow thanks to the introduction of new multi-function printers, mobile printers, and industrial 3D printers, and its acquisition of Samsung's printing division. HP's printing revenues jumped 11% annually last quarter, but its operating margin dipped as it integrated Samsung's business.

Analysts expect HP's revenue and earnings to rise 11% and 21%, respectively, this year. Those growth rates should decelerate next year as it laps the Samsung acquisition, but the stock still looks dirt cheap at 11 times forward earnings.

HP pays a forward dividend yield of 2.3%, and it's hiked that payout twice after splitting with Hewlett-Packard Enterprise in late 2015. HP spent just 22% of its FCF on that dividend over the past 12 months, so it has plenty of room for future hikes.

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Leo Sun owns shares of Cisco Systems and HP. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.