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Mining for income in large-cap tech stocks?Infosys shares

You’re probably trying to extract income from overworked mines. Dividend-yield onesies are the norm these day in large-cap tech.

Apple (NASDAQ: AAPL) pays a dividend to yield 1.5%, as does Oracle (NASDAQ: ORCL). Microsoft (NASDAQ: MSFT) offers only slightly better deal. Its dividend yields 1.8%.

Try mining elsewhere. The hottest properties offer the coldest income deals for new investors: On one side, the price is bid up. On the other side, the dividend yield is bid down.

Best to look for something on the cooler side in cooler environs.

Infosys Ltd. (NASDAQ: INFY) is a cooler large-cap tech company, but it offers a hotter dividend deal. Its shares yield 2.4%. And like the other guys, Infosys increases its dividend annually.

As for the company behind the dividend, Infosys is one of India’s largest companies. Its market cap exceeds $39 billion. Infosys shares (technically, American depositary shares) trade on the NYSE.

Infosys is a leading provider of consulting, technology, outsourcing, and next-generation services. Though India-based, Infosys generates less than 3% of its annual revenue in its home country. North America and Europe markets generate over 80% of annual revenue.

Old perceptions die hard. Many investors perceive Infosys as a troubled outsourcing company past its prime. Look past the perception and you’ll find a value-driving enterprise.

Expansion Into New Services

Infosys has aggressively moved into new services — mainframe modernization, cloud applications, IoT, cybersecurity, and complex analytics.

Infosys Nia, an artificial intelligence software platform, is emblematic of the new direction. The new software employs big data analytics, machine learning, optical character recognition, and natural language processing capabilities to solve business problems and increase operating efficiency.

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The growth outlook is further enhanced by new acquisitions in spry industries. Six new investments were made in 2017. These include startups in AI, autonomous unmanned vehicles, data insights, and the cloud.

Moving up the food chain should invigorate growth. Infosys crossed $10 billion in annual revenue and grew revenue by 6.7% year over year in 2017. (The fiscal year runs April through March.)

Infosys should end fiscal-year 2018 with $10.7 billion of revenue. EPS should post at around $0.99. Infosys will post year-over-year earnings growth, which it has done for the past 10 years.

Margins, after compressing over the past year, expanded in the latest reported quarter. Gross, operating, and net margins were all higher for the quarter.

Expanding margins will expand the cash account, which is already well distended. Infosys ended the latest quarter with $6.5 billion of cash and cash equivalents compared with $4.95 billion of cash and cash equivalents in the same quarter in fiscal-year 2017.

Infosys Shares: $2 Billion Buyback Planned

As for the capital structure, it’s as solid as can be. Financial risk is virtually nonexistent. Infosys has no long-term debt. Its cash on hand could easily extinguish all liabilities three times over.

Infosys’ ample liquidity will enable it to comfortably fulfill plans to buy up to $2 billion of its discounted Infosys shares. Ample liquidity will also enable it to raise its dividend annually (as it has for the past 10 years).

Infosys shares trade at 16.3 times projected fiscal-year 2018 EPS estimates. Infosys shares trade at 15.3 times projected 2019 EPS estimates. The peer-group multiple is 20.

Combine a higher dividend yield with a lower equity and the investment proposition materializes.

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Published by Wyatt Investment Research at