2 Dividend-Paying Tech Stocks to Buy in October

The tech sector is a key industry that should be represented in any portfolio. Vecima is one of two dividend-paying tech stocks to buy now.

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Tech stocks sure have been put through the ringer in 2022. After a prolonged period of magnificent performance, 2022 has seen a shifting tide. It used to be easy to find tech stocks to buy, as they were all soaring to new heights. Today, most have crashed down to reality.

There are many examples of this. But I would like to draw your attention to two dividend-paying tech stocks to buy that stand out from the rest.

Evertz: A high returns business yielding 6.3%

Evertz Technologies Limited (TSX:ET) stock was never a high-flying stock, even in the tech boom. But this was by design, as it focuses on a different type of business than most – lower growth but higher returns.

You see, Evertz designs, manufactures, and markets video and audio infrastructure solutions. It’s a global manufacturer of broadcasting equipment and solutions such as encoders, decoders, and mixing consoles. The company provides this broadcast gear for the television, telecommunications, and new media industries.

The business has been a relatively steady one, as we can see in the company’s results. It’s also a high margin one, with very strong returns. Evertz’s net margin is in the high teens (over 16%), and rising. Return on equity is almost 30%, with little debt. Finally, Evertz’s cash flow from operations is very healthy. Last year, its cash flow from operations, excluding working capital, was just shy of $100 million. This represents a 14% increase versus five years ago. Also, and very importantly, this company has been consistently free cash flow positive for many years now, as capital expenditures have been quite low.

These are all good numbers. They’re far better than Evertz’s peer group. In short, they’re a reflection of a high returns business. Add all of this to the fact that Evertz has low debt and a high dividend yield of over 6%, and we can see the writing on the wall. Evertz is a solid dividend-paying tech stock, especially in today’s macroeconomic environment. It’s also a cheap stock, trading at 13 times this year’s expected earnings.

Vecima: A fast-growing business with a 1.2% dividend yield

Vecima Networks Inc. (TSX:VCM) is another dividend-paying tech stock with a slightly different focus – broadband and telematics. The broadband segment offers networks for cable and telecom operators to meet bandwidth demands. Its telematics segment offers fleet management software to help monitor trucks.

So, as you can imagine, these segments are very much in high demand. This is evidenced by Vecima’s recent results. Revenue has recently hit an all-time high (up 31% in 2021) and EPS increased 30% in the company’s latest quarter. Clearly, Vecima is a different kind of dividend-paying tech stock.

This is more of a growth story than Evertz. Vecima’s growth is much stronger, but its margins are much lower. Also, cash flows are not as strong – in fact, Vecima is in a cash burn situation (free cash flow negative). Lastly, it’s dividend yield is a mere 1.2%. But at least there is a dividend – a rare thing among high growth tech stocks.

In addition, Vecima’s valuation is much higher than Evertz’s. In fact, it trades at a P/E of 20 times this year’s expected earnings. This is very inexpensive, however, considering that earnings are expected to more than double this year.

Motley Fool: The bottom line

So, we have two very different, but equally attractive dividend-paying tech stocks here. They both certainly have their merits. One is a slow growth, but very high margin, high returns business. The other is a fast-growing business with lower returns and cash flows, and ultimately, a lower dividend yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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