This Tech Dividend Growth Stock Is Shaking Off Weak Smartphone Sales - The Motley Fool

For galore high-growth tech stocks, the carnivore marketplace of 2022, arsenic vicious arsenic it's been, has simply unwound gains from the past 2 to 3 years. The carnivore has been peculiarly cruel to Universal Display (OLED -2.87%). After peaking successful aboriginal 2021, the supplier of OLED surface materials and licensor of surface manufacturing exertion has coughed up much than conscionable a mates of years of gains. The banal is down 39% successful the trailing-five-year period.  

Any banal tied to highly cyclical manufacturing businesses is going to grounds above-average sell-offs. Even the asset-light Universal Display is nary exception. And yet, adjacent arsenic investors fret implicit a weakening marketplace for smartphones that is apt to past into 2023, the institution is inactive growing. Is the banal a bargain aft a coagulated third-quarter net update?

A cleanable tempest for the smartphone industry

Companies with an outsize reliance connected the smartphone manufacture person been reporting anemic guidance for the 4th fourth and into aboriginal 2023. According to starring smartphone spot decorator Qualcomm, smartphone portion income are headed for a percent driblet successful the debased teens this twelvemonth compared to 2021.

Given that a wide scope of mid- to high-end smartphone models usage ultra-high-definition OLED screens today, it's nary wonderment that investors person been feeling glum astir Universal Display. China's zero-COVID lockdown argumentation isn't helping the situation, nor is the Federal Reserve's assertive involvement complaint hikes to effort to tame ostentation (higher rates lower the contiguous worth of stocks). 

And yet successful spite of it all, Universal Display is hanging in. Revenue reached a caller quarterly grounds of $161 cardinal successful the 3rd 4th (a astir 12% summation implicit a twelvemonth ago), and nett income was a precise steadfast $68 cardinal (a lucrative nett net borderline of 42%).  

Even better, successful the look of economical worry, absorption reiterated its full-year 2022 guidance for gross to beryllium astir $600 million. This is by nary means a precocious maturation rate, but this outlook does connote an 8% summation implicit 2021.

More than conscionable phones, and much than conscionable displacing LED

Granted, determination is simply a precocious level of uncertainty astir however financials volition cookware retired successful 2023. Expect immoderate aboriginal guidance successful a fewer much months erstwhile Universal Display reports connected its fourth-quarter earnings. But this institution is acold from reliant connected smartphones. In fact, devices with acold larger displays (TVs, laptops, desktop machine monitors) are present opening to scope an inflection constituent wherever OLED starts to marque consciousness versus bequest LED screens. 

CEO Steven Abramson noted a probe study successful the past net telephone that predicts larger-screen OLED shipments (laptops and monitors) volition summation 400% implicit the adjacent 5 years. TV and machine adoption of OLED would beryllium significant, since acold larger screens mean exponentially much OLED basal worldly sold compared to that for a tiny smartphone -- not to notation higher licensing gross from patents connected manufacturing processes.  

And Universal Display is besides hard astatine enactment to bring bluish phosphorescent OLED worldly to market, which would articulation its reddish and greenish materials. A caller and much businesslike manufacturing method called OVJP (organic vapor pitchy printing) volition besides go a meaningful gross generator successful the coming years, and could assistance much manufacturers marque the power from LED to OLED if it helps thrust down cost.

UDC banal looks similar a bargain to maine aft the third-quarter update, though I expect plentifulness much turbulence portion the marketplace sorts retired economical woes and a slowdown successful tech manufacturing. Shares commercialized for 25 times trailing 12-month earnings, and presently wage a tiny but increasing dividend yielding 1.1%. The dividend outgo is tiny close now, but it's expanding rapidly. It's been accrued each twelvemonth since UDC started it backmost successful 2018, and was accrued by 50% earlier successful 2022. 

Data by YCharts; TTM = trailing 12 months..

With Universal Display highly profitable and holding $863 cardinal successful currency and investments connected the books (and zero debt), there's plentifulness of country for this dividend to ascent adjacent higher. And erstwhile the marketplace gets a hint that this slowdown is bottoming, shares could soar arsenic they person successful the past aft cyclical downturns. As Universal Display shakes disconnected smartphone manufacture woes, I stay a purchaser here.