Dividend Investing Ideas Center
Have you ever wished for the safety of bonds, but the return potential...
Dividend Investing Ideas Center
Aaron Levitt Jul 24, 2015
Back in the 1930s, iconic comic book character Dick Tracy used a wrist radio to communicate with authorities when solving a crime. Creator Chester Gould had no idea how ahead of his time that was. Go to your local shopping mall and you’ll see an abundance of consumers walking around with similar devices on their wrists and faces.
The sector has finally begun to reach critical mass. Defined as any product that is worn on an individual’s body for an extended period of time in order to enhance the user’s experience, wearables could be one of the hottest trends in the consumer technology sector for years to come. For investors, getting in on the market’s early adopters could lead to some big-time profits.
The first real example of consumer wearable tech was Casio’s (CSIOY) “smart watches” from the early 1980s. This early foray into wearable tech was basically a glorified calculator that could also tell time and track a few notes. Later models could actually change the channels on your television. Big time stuff there. Today’s wearable technology market is a bit more advanced. Covering fitness bands and smart watches to virtual/enhanced reality and heads-up displays, today’s wearable devices can do far more than add/subtract or store a phone number.
Featuring super-fast semiconductors, touch screens and Bluetooth connectability, today’s wearables are basically personal computers for your wrists. Some will even allow you to open PDFs and excel files. Add in the generally lower price point for wearables and it’s easy to see how the sector has resonated with consumers.
Already, the sales of wearables has surpassed many analysts’ expectations. Last year, about 21 million devices in the category were sold. However, that’s just a drop in the bucket longer term. Analysts at Piper Jaffray predict that over the next few years wearable tech will grow at a compound annual growth rate (CAGR) of 48% to reach 150 million units by 2019. Expanding that further and using tablet adoption numbers as a guide, Piper Jaffray estimates that the category has a 230 million to 385 million unit potential. And that staggering number doesn’t even include current users wanting to trade-up to the newest models or replace existing devices.
We are still very much in the first innings of the wearable tech revolution. There’s plenty of ways for investors to cash in and profit as wearable tech expands. Those plays are grouped into two broad categories: parts suppliers and device manufacturers.
When you’re walking through the mall and notice someone’s arm lighting up, these are the firms that are making it happen. The device manufacturers are the ones designing, producing and ultimately getting the name recognition when it comes to wearable tech. And that name recognition is an important part of the sector. There’s very much a “cool” factor when it comes to early adopters. There’s a reason why Nike (NKE ) and even Ralph Lauren Liquid error: internal have gotten into the wearable tech game.
Garmin Ltd. (GRMN ): While its bread and butter is still GPS systems for boats, airplanes, and other vehicles, Garmin has been in the wearables sector since almost the very beginning. Its line of GPS forerunner watches have been standard fare at marathons for years. However, the firm has continued to expand its presence in wearables among various price points, giving it a dominant position and adding a bit of growth. Meanwhile, its main GPS business keeps churning out the cash flows and paying its juicy dividend.
Apple (AAPL ): As we said, “cool” is very much a factor when it comes to wearables and you can’t get much cooler than Apple. The company’s iPhone has evolved beyond just a device and has become a status symbol for many consumers. Its latest product-Watch-hopes to do the same in the wearables category. Sales of the product have been initially swift and have helped Apple boost its record cash hoard to over $200 billion. That will help it keep paying its dividend and even increase it. And there’s plenty of opportunity for AAPL to use the watches technology in other wearable devices.
Fitbit Inc. (FIT): Fresh off its IPO, Fitbit basically created the health wearable tech subcategory. Already, FIT has seen rapid adoption of its bands and analysts continue to estimate that it should see an 18% compounded annual growth rate through 2020 for its products, leading to potential dividends down the line.
Smart watches, fitness bands and other wearable devices are pretty complex pieces of machinery. And as such, they take a lot of intricate parts to create them. For the firms that make these parts, it can mean some big profits down the line. More importantly, for investors, the makers of all the internal components wins no matter who has the hottest device.
Texas Instruments Inc. (TXN ): As one of the largest integrated semiconductor firms on the planet, it should come as no surprise that Texas Instruments has its hands in the wearables market. What is surprising is the breadth of products it makes. TXN produces near-field communication chips, heads-up displays and bio-sensing devices. However, what will really drive TXN’s growth in wearables is its low-power and energy-saving chip sets and software. Reducing weight and increasing battery life is a necessity for the sector. Ultimately, TXN should see more sales on that front. TXN has constantly increased its dividend from 2004.
Microchip Technology Inc. (MCHP ): Microchip Technology has historically made boring products, the kinds of chips that go into washing machines and smoke alarms. However, tucked behind these more common chips is a rapidly growing wearables and smart phone business. That includes making everything from touch screen and haptics sensors to Bluetooth and wireless audio. These more exciting chips will help continue to keep MCHP growing into the future, while the boring stuff pays the stock’s hefty dividend.
Maxim Integrated Products, Inc. Liquid error: internal: Maxim is taking a different approach to the wearables market. Instead of producing various operating chips, it’s focusing its efforts on the sensing side. MXIM makes a host of devices that measure galvanic skin response. That allows it to track heart rate, stress, temperature, etc. Basically, it gives MXIM an inroad into the hottest category of wearables-health care/fitness-and should provide growth to its already generous dividend payout.
The wearable tech revolution is on. Consumers continue to adopt the lower priced devices at a rapid rate. Yet, there is still tons of potential for growth left in the theme and sector. For investors, betting on the sector’s leading players could earn them some serious coin over the long haul.
Image courtesy of franky242 at FreeDigitalPhotos.net