Five Dividend-paying Software Investments to Purchase as Sector Soars

Five dividend-paying software investments to purchase as the sector soars feature three funds, an industry giant and a manufacturer of security products to address intrusion, fire, video, wireless, access control and door-locking systems.

The five income-paying software investments to purchase allow investors to tap into technology stocks that have been achieving a comeback so far this year. Despite headwinds of inflation, tight money, a brewing banking crisis and gridlock in Washington about raising the U.S. government’s debt ceiling, the technology-tilted NASDAQ has soared 22.30% year to date and 12.33% in the past three months.

Investors who are reluctant to purchase individual software stocks may prefer a fund, said Bob Carlson, a pension fund chairman who heads the Retirement Watch investment newsletter. One such fund that Carlson said he likes is Invesco Dynamic Software (PSJ), aimed at tracking the Dynamic Software Intellidex Index that consists of approximately 30 companies engaged in businesses related to software applications, systems and information services.

PSJ Leads Five Dividend-paying Software Investments to Purchase

Bob Carlson, head of Retirement Watch, meets with Paul Dykewicz.

The index is updated quarterly to incorporate factors such as price momentum, earnings momentum, quality, management action and value. The fund’s turnover ratio is more than 200%.

About 49% of the fund is in its 10 largest positions. Top holdings recently were Electronic Arts (NASDAQ: EA), Forinet (NASDAQ: FTNT), Activision Blizzard (NASDAQ: AITI), Cadence Design Systems (NASDAQ: CDNS) and The Trade Desk (NASDAQ: TTD).

PSJ lost 27.73% in 2022 but is up 11.38% so far in 2023 and 8.52% over the last 12 months. The fund also offers a modest dividend yield of 2.0%.

Chart courtesy of www.stockcharts.com

Tap TDIV as One of Five Dividend-paying Software Investments to Purchase

A broader-based fund with a higher dividend yield is First Trust NASDAQ Technology Dividend Index (TDIV). The ETF tries to track the Nasdaq Technology Dividend Index, which is composed of technology and telecommunications companies.

The fund recently had 94 holdings, and its 10 largest positions accounted for 59% of its assets. The biggest weightings recently were Microsoft (NASDAQ:MSFT), Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC), Broadcom (NASDAQ: AGVO) and IBM (NYSE: IBM). Roughly 13% of the fund was in communication services and the rest fit into the technology sector.

The fund lost 22.12% in 2022 and is up 11.98% so far in 2023, 6.47 during the past three months and 1.72% over the last 12 months. As of May 25, the stock’s dividend yield was 2.2%.

Chart courtesy of www.stockcharts.com

Five Dividend-paying Software Investments to Purchase Include XLK

Another fan of technology funds is Mark Skousen, PhD, an economist who serves as a Presidential Fellow at Chapman University and heads the Forecasts & Strategies investment newsletter. He recommended a technology fund, Technology Select Sector SPDR Fund (NYSE: XLK), in his newsletter that has climbed 29.04% so far this year through May 25.

Mark Skousen, head of Forecasts & Strategies, meets with Paul Dykewicz.

Skousen, who is a descendant of founding father, diplomat and inventor Benjamin Franklin, pointed out that the fund was heavily weighted in some of the strongest-rising technology stocks. One of those stocks is Microsoft (NASDAQ: MSFT), a software development company in Redmond, Washington, that has jumped 36.54% so far this year.

Microsoft Leads Five Dividend-paying Software Investments to Purchase

Chart courtesy of www.stockcharts.com

Technology Select Sector SPDR Fund offers a current dividend yield of 0.8%. What’s XLK’s secret? Skousen shared that the fund’s holdings are heavily weighted toward some of the most successful stories in 2023: Microsoft (NASDAQ: MSFT), up 36.54%… Apple (NASDAQ: AAPL), soaring 34.33%… NVIDIA (NASDAQ: NVDA), rocketing 161.58%… Broadcom (NASDAQ: AVGO), gaining 41.52% and Salesforce (NASDAQ: CRM), rising 59.16%.

Skousen, who also heads the TNT Trader advisory service that recommends both stocks and options, instructed his followers to take a profit on May 25 of 323.96% by selling call options in Nvidia Corp. that he recommended on May 2. He advised boosting the stop price on the stock he recommended on May 2, to protect most of a gain that currently is at 37.46%.

Chart courtesy of www.stockcharts.com

NAPCO Is One of the Five Dividend-paying Software Investments to Purchase

Napco Security Technologies (NASDAQ: NSSC) is an Amityville, New York-based manufacturer of security products, featuring advanced technologies for intrusion, fire, video, wireless, access control and door-locking systems. Its products are sold and installed by tens of thousands of security professionals worldwide to serve commercial, industrial, institutional, residential and government applications.

The company has a heritage of developing innovative technology and reliable security solutions for the professional security community, including StarLink Universal Wireless Intrusion & Commercial Fire Communicators and new StarLink Connect Radios with Universal Full Up/Download for major brands. Napco Security also offers Gemini Security & Fire Systems and the NAPCO Commercial Platform of 24V Addressable/Conventional/Wireless Systems and Firewolf Fire Panels & Devices.

“When the Federal Reserve stops ratcheting up interest rates, I would expect strong growth stories to continue to profit,” said Michell Connell, who heads the Dallas-based Portia Capital Management. The company’s five-year revenue growth has been 10.45% per year and its five-year earnings growth rate has averaged 28% or more every year, Connell continued.

“EPS growth rate is expected to increase exponentially more than 100% this year,” Connell commented. “That’s well ahead of the industry average expected growth rate of 22%.”

The company is a “strong cash generator,” Connell concluded.

Michelle Connell heads Portia Capital Management.

During the past three to five years, Napco Security’s annualized growth rate has topped 20%. The industry average has only been about 5 to 6%, Connell told me.

The Company initiated a dividend when it reported on May 8. While the dividend yield is less than 1%, it’s a start, Connell counseled.

The company’s outlook appears “strong,” Connell opined. Since the beginning of 2023, earnings expectations for the company have climbed.

“While the stock is up over 20% YTD, it could return another 20-25% over the next 12-18 months, Connell conveyed. “However, given its high-octane performance, it can also provide swift downdrafts. The stock has declined more than 60% at certain points. In addition, there is a high short interest of 14%. It makes me cautious in the near-term.”

Chart courtesy of www.stockcharts.com

To avoid overpaying before a potential short-term dip, consider dollar-cost averaging by purchasing shares amid pullbacks, Connell counseled.

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CRWD: Alternative to Five Dividend-paying Software Investments to Purchase

CrowdStrike Holdings, Inc. (NASDAQ: CRWD), headquartered in Austin, Texas, is a non-dividend-paying, next-generation protection, threat intelligence and services company. The company relocated from Sunnyvale, California, in December 2021, but retains a significant business operation in Silicon Valley at its former headquarters.

CrowdStrike offers cybersecurity for endpoint market-phones and laptops. Microsoft also offers a cybersecurity solution but it is considered to be “inferior,” compared to CrowdStrike, Connell said.

Even so, Microsoft’s status as a software industry “behemoth” is always a potential problem for competitors such as CrowdStrike, Connell continued. CrowdStrike’s revenue growth is expected to remain exceedingly high, with 35% growth expected in 2023, she added.

“The company has 30% free cash flow margins,” Connell said. “While these are very rich, the company expects them to go even higher.”

CrowdStrike’s management is offering guidance of a 33% gain in cash flow margins this year. The company also has built a “huge war chest” of $2.7 billion in cash, Connell noted.

Plus, CrowdStrike focuses on an area of technology that should continue to do well, no matter the economic environment, counseled Connell, who added that the company’s growth expectations are achievable.

Despite the company’s stock price advancing 44.45% year to date, its potential upside could be in excess of 25% during the next 18 to 24 months, Connell concluded. In addition, Connell advised dollar-cost-averaging and viewing CrowdStrike as a long-term holding.

Chart courtesy of www.stockcharts.com

Potential risks for CrowdStrike include the possibility that its status for offering what Connell called the “best solution” in the industry could change. For example, Microsoft could acquire one of CrowdStrike’s smaller competitors, improve upon the product offering and gain market share, Connell cautioned.

“There’s a valuation risk here,” Connell said. “The stock’s current price may be ahead of itself. However, the long-term opportunities seem to outweigh that.”

“We believe investors may not be appreciating how large and how profitable CrowdStrike can become over the long term, based on its strong growth and operating leverage potential,” according to the Chicago-based investment William Blair, which has an “outperform” rating on the stock.

Update on U.S. Government Debt Ceiling Negotiations

Negotiations are continuing between President Biden, Speaker of the House Kevin McCarthy and other leaders in Congress on raising the U.S. government debt ceiling but no agreement has been reached yet. Treasury Secretary Janet Yellen has warned that the risk of default mounts on June 1.

Any failure for the United States to meet its financial obligations would be the “ultimate gift” for China, warned the CEO and founder of deVere Group, a large, independent financial advisory, asset management and fintech organization. President Biden has been reluctant to give details about terms of possible compromise but has said he believed a deal can be reached.

Democrats have demanded a “clean” increase in the ceiling without conditions to pay debts from spending and tax cuts approved by Congress. Republicans counter they will not authorize any additional borrowing without an agreement to cut federal spending.

If the U.S. government’s debt limit is not raised by Congress before then, deVere Group CEO Green cautioned that a default would upend the global financial system and likely be “worse” than the 2008 crash.

“It would cause upheaval on an unprecedented level,” Green said.

A default would lead to a decline in the value of the U.S. dollar and a loss of confidence in the U.S. financial system, Green said. As such, investors would seek alternative destinations for their capital, he added.

“China would move to position itself as a more stable and attractive investment option, attracting more international investment and capital inflows,” Green said. “In turn, this would boost the Chinese economy and financial markets.”

CDC Halts Weekly Reports of COVID-19 Vaccinations and Cases

The COVID-19 pandemic’s public health emergency status in the United States expired on May 11, 2023, while the World Health Organization earlier this month declared an end to what it began calling a public health emergency of international concern on January 30, 2020. However, the virus keeps killing Americas each week and remains a public health threat. Even though death rates are dropping, Dr. Robert Anderson, the chief of the mortality statistics branch at the National Center for Health Statistics, warned that COVID-19 deaths could top 100,000 in 2023.

The U.S. Centers for Disease Control and Prevention (CDC) reported at least one vaccination against COVID-19 and its bivalent variant has been given to 270,227,181 people, or 81.4%, of the U.S. population. Those who have completed the primary COVID-19 doses totaled 230,637,348 of the U.S. population, or 69.5%, according to the agency.

The United States had given a bivalent COVID-19 booster to 52,996,306 people who are age 18 and up, equaling 20.5% of America’s population. Those reports are the last weekly updates that CDC officials plan to provide after the agency called an end to the U.S. public health emergency.

Medical studies have shown COVID-19 vaccinations help keep people healthy and reduce the morbidity caused by the virus. The markets should be helped by any incremental increase in consumer confidence that aids retail shopping, travel and other spending.

Russia’s War in Ukraine Remains a Fierce Firefight

Ukrainian cities, including the country’s capital of Kyiv, were hit again today, May 26, by Russian cruise missiles and drones. Russia has intensified its aerial attacks in recent weeks, likely to disrupt Ukraine’s plans for a long-anticipated counteroffensive to push back Russian forces that invaded in February 2022.

One missile struck a clinic in Ukraine’s eastern city of Dnipro, killing at least one civilian and wounding 15 others. Ukrainian President Volodymyr Zelensky called it “another crime against humanity,” in a Twitter post.

Russia’s raging war in Ukraine poses a sustained financial threat. News from the war zone reported that Russia largely seized the Ukrainian city of Bakhmut. Russia’s President Vladimir Putin reportedly plans to use the city as a transportation hub to then attack other places in Ukraine’s industrial eastern region.

However, Ukrainian forces remain in the area, largely outside the city, and may pose a challenge to uproot completely, said Yevgeny Prigozhin, the private militia’s leader.

The five dividend-paying software investments to purchase are on the rise, despite economic uncertainty, inflation, tight money, a brewing banking crisis, no agreement in Washington about raising the U.S. government’s debt ceiling and the ongoing political risk from Russia’s relentless invasion of neighboring Ukraine in violation of international law.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal omf Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.