Technology Solutions for the Lockdowns (with Dividends)
May 14, 2020
The US lockdowns have been devastating to the economy and the financial markets. But the economy is showing how it can and will adapt to remote working and stay-at-home conditions around the nation.
Not all industries and sectors are coping or adapting, but there are many that are and should continue to do so.
Now, the problem is that lots of revenue reporting is not official, and forward-looking numbers are really just conjectures. This is a major problem when arguing for investment in one company over another.
But each of the companies here passes the status review that I’ve been doing over the past months in Profitable Investing. So, I expect that they will get through the mess. Going forward, I see their business activities and prospects looking up as well.
One key figure that has hit my radar: Internet data usage is soaring. For March, comScore (SCOR), a monitor and measurement company for data and media, reports that in-home data usage is up 18% over last year.
And there are even larger gains inside that overall number. Gaming consoles data is up 48%, smart speaker data from Amazon (AMZN) and others is up 44% and streaming television data is up by 38%. Smartphone and tablet data are also surging by 34% and 12%, respectively.
This means the companies behind much of the software, hardware and services are gaining customers and usage. And even as the lockdowns are eased, it will be a slow return to the old way of doing business and accessing entertainment.
Many companies are recognizing that remote work has plenty of benefits. Morgan Stanley CEO James Gorman stated that the firm has proven it can perform with no footprint of traditional offices. And going forward, he and his team are developing plans to be more remote savvy.
The companies that are benefitting start with Microsoft (MSFT), one of the leading cloud computing companies. Also, its gaming consoles and online gaming experiences are some of the benchmarks for the sector.
Microsoft’s Office 365 is one of the leaders in email and subscription-based productivity software that is the go-to for nearly all companies and individuals, even with some Apple (AAPL) users. And while Zoom (ZM) garnered headlines (good and bad), Microsoft’s Skype is still the top video platform to use.
The company has limited debt and lots of cash. And while the shares are high in terms of book value, the stock is positive year to date by 13.6% in total return. That trend should continue.
None of this data gets moved without the cloud. And the cloud resides in servers in data farms. The leader in building, maintaining and leasing that storage is Digital Realty Trust (DLR).
Digital Realty is a real estate investment trust (REIT) that has data centers around the nation and beyond. It has major customers that lease space and capabilities in its centers, including all of the big telecom and cloud companies such as Microsoft. And like for Microsoft, the stock has returned a positive number year to date of 12.7%.
Data & Centers Pay: MSFT & DLR Total Returns Year to Date—Source: Bloomberg Finance, L.P.
I also see that the dividend for Digital Realty, which was just raised, should be sustained by its data center revenue with little counterparty risk. The distribution is up to $1.12 per share for a yield of 3.1%.
Next up is the trio of US and Canadian telecom companies that are moving all of the voice and data through their networks—AT&T (T), Verizon (VZ) and BCE Inc. (BCE) in Canada.
Data Communications Turnabout: AT&T, Verizon & BCE Total Returns Post March 23—Source: Bloomberg Finance, L.P.
Each of these companies has counterparty risks in that some business and individual customers will be stressed in the near term to continue service and pay their bills.
But each of these companies have financial and credit capabilities to sustain themselves even with some challenged customers. The vast majority of their paying customers are strongly demanding service.
And in terms of AT&T and BCE, entertainment content in households is a further boost for current and future revenues. Dividends should be sustainable.
AT&T pays 52 cents in distributions, up by 2% over the past year, for a yield of 6.7%. T is a buy in a tax-free account.
BCE recently upped its distribution to 83.25 Canadian cents ($0.5928) for a yield of 5.8%. BCE is a buy in a taxable account.
For Verizon, it’s not just content to carry Zoom data and voice. It has announced it’s acquiring video conferencing up and comer BlueJeans Network, adding to its capabilities for revenue now and beyond the mess.
Verizon pays its defended dividend of 61.5 cents for a yield of 4.2%. VZ is a buy in a tax-free account.
All My Best,
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life
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