After posting an impressive rally in the first four months of 2019, Wall Street faced a severe downturn in May. The abrupt breakdown of U.S.-China trade negotiations plus several weak economic data of April and May dented investors' confidence. However, the situation improved in the beginning of June after the Fed Chairman's indication of a possible cut in benchmark interest rate.
The technology sector also witnessed severe volatility in the past month. Intensification of trade conflict acted as a major dampener for the tech stocks. However, resolution of trade conflict with Mexico and high expectation of rate cut by the Fed enabled the space to recover lost ground in June.
U.S.-China Trade Conflict Continues
So far, the U.S. government has imposed 25% tariffs on $250 billion Chinese goods while China has retaliated with 25% tariff on $170 billion of U.S. exports. It does not stop there. President Trump has expressed his desire to levy 25% tariff on another $325 billion Chinese products, if the Chinese president fails to meet him in a negotiation in the upcoming G-20 summit.
Additionally, on May 15, the Trump administration blacklisted Chinese behemoth Huawei Technologies from doing business with U.S. counterparts. As a retaliatory move, China has decided to stop exporting rare earth minerals to the United States.
These are crucial inputs for developing high-tech products like smartphones, computer memory chips and rechargeable batteries as well as defense-related aerospace products. China has a near monopoly of producing these minerals and almost 80% of these minerals are exported by China to the United States.
Tech Stocks Rebounds in June
On Jun 4, Jerome Powell said that the central bank is watching current economic developments and will "act as appropriate to sustain the expansion." His comments have been considered as a strong signal. Moreover, recently released tepid economic data on job growth, manufacturing PMI and factory orders, and subdued inflation are leading investors to consider a strong ground for a possible rate cut.
As a result, the technology sector rebounds in June. The Technology Select Sector SPDR (XLK), one of the 11 sectors of the benchmark S&P 500 Index, is up 4.7% in the past month, despite facing market mayhem in May. Notably, a few large-cap tech stocks that also offer high dividend popped up in the past month.
High Dividend Yield
Traditionally, the tech sector has long been known for its growth companies that offered little dividends and are more interested in reinvesting their cash in the businesses. Nevertheless, that trend has changed a long way in recent years.
Technology companies began to compensate shareholders during the financial crisis of 2008 - 2010 as several sector participants were heavily cash rich by that time. This trend is still in vogue buoyed by surging revenues and high margins. In fact, in dollar terms, technology is now the largest dividend-paying sector in the United States.
Our Top Picks
At this stage, we narrowed down our search to five large-cap technology stocks that gained in past month and still have upside left. These stocks are also paying lucrative dividends regularly, which cushion investors' portfolio during market downturn.
The chart below shows price performance of our five picks in the last one month.
LM Ericsson ERIC provides information and communications technology solutions for wireless service providers. It operates through four segments: Networks, Digital Services, Managed Services and Emerging Business and Other. The stock sports a Zacks Rank #1 and dividend yield of 0.67%. The company has expected earnings growth of 1,167.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 18.8% over the past 60 days.
Cisco Systems Inc. CSCO designs, manufactures and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The stock carries a Zacks Rank #2 and dividend yield of 2.51%. The company has expected earnings growth of 18.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the past 60 days.
Ubiquiti Networks Inc. UBNT develops networking technology for service providers, enterprises and consumers. It focuses on three principal technologies, including high-capacity distributed Internet access, unified IT, and consumer electronics for home and personal use. The stock carries a Zacks Rank #2 and has a dividend yield of 0.75%. The company has expected earnings growth of 32.3 % for the current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the past 60 days.
Microsoft Corp. MSFT is one of the largest broad-based technology providers in the world. Although software is the most important revenue source, its offerings also include hardware and online services. The stock carries a Zacks Rank #2 and dividend yield of 1.40%. The company has expected earnings growth of 18% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.9% over the past 60 days.
Motorola Solutions Inc. MSI provides communication equipment, software and services. It focuses on providing public safety communications ranging from infrastructure to applications and devices. The stock carries a Zacks Rank #2 and dividend yield of 1.41%. The company has expected earnings growth of 8 % for the current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the past 60 days.