Efficient chipmaker continues to raise dividend

This chipmaker continues to benefit from increased efficiencies and productive research spending.

The company is a leader in analog chips. Investments in equipment upgrades have helped boost earnings, which jumped 22% in the most recent quarter. A strong balance sheet supports its research as well as an extensive share buyback plan. This stock recently raised its dividend for the 14th consecutive year; the shares currently yield 3.2%.


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TEXAS INSTRUMENTS INC. (Nasdaq symbol TXN; www.ti.com) is a leading maker of analog chips. Those products convert inputs like touch, sound and pressure into electronic signals that computers can understand. Manufacturers use them in a variety of products, including cars, cameras and appliances.

Analog chips supply 66% of the company’s overall revenue. It gets a further 23% of its revenue from embedded processor chips, which perform mathematical calculations. The remaining 11% of revenue comes from other chips, calculators and the licensing of technology to other firms.

Revenue rose 6.9%, from $12.2 billion in 2013 to $13.05 billion in 2014. However, unfavourable exchange rates caused revenue to slip to $13.0 billion in 2015. Revenue then rose 2.8%, to $13.4 billion in 2016, and improved 11.9% to $15.0 billion in 2017. That rise was the result of higher chip sales to carmakers and other industrial clients.

Earnings jumped from $2.0 billion in 2013 to $4.4 billion in 2017. Due to fewer shares outstanding, earnings per share rose at a faster rate of 148.6%, from $1.75 to $4.35.

The higher earnings are partly due to investments in chipmaking equipment to improve the efficiency of the company’s manufacturing plants; gross profit margin (gross profits as a percentage of revenue) rose from 52.1% in 2013 to 64.3% in 2017.

Dividend stocks: Since 2004, company has cut number of shares outstanding by 43%

In the third quarter of 2018, Texas Instruments’ revenue improved 3.5%, to $4.26 billion from $4.12 billion a year earlier. Earnings in the quarter jumped 22.2%, to $1.57 billion from $1.26 billion; per-share earnings gained 25.4%, to $1.58 from $1.26 on fewer shares outstanding.

Higher profits from analog chips (up 14%) offset declines for the company’s embedded processing (down 5%) and other operations (down 7%). Recent U.S. tax reforms also cut Texas Instruments’ effective tax rate to 18% from 28%.

Research costs in the quarter rose 4.0%, to $390 million (or 9.2% of revenue) from $375 million (or 9.1%).

Texas Instruments can easily afford to keep investing in its operations. As of September 30, 2018, its long-term debt of $4.3 billion was a low 5% of its market cap. As well, the company held cash of $5.1 billion, or $5.30 a share.

This strong balance sheet also lets Texas Instruments buy back its shares: since 2004, it has cut the number outstanding by 43%. It recently added $12.0 billion to its share repurchase plan and can now spend up to $19.4 billion.

Earlier this year, the company removed Brian Crutcher as president, chief executive officer and the board of directors. Texas Instruments said his personal behaviour violated its code of conduct. The situation did not involve the company’s strategy or financial reporting.

Texas Instruments’ chairman, Rich Templeton, has returned to his previous role as CEO. The company is not currently seeking a replacement.

Texas Instruments has now increased its dividend each year for the past 14 years. It recently raised its quarterly dividend by 24.2%. Starting with the November 2018 payment, investors will receive $0.77 a share, up from $0.62. The new annual rate of $3.08 yields 3.2%.

Earnings for 2019 should rise from $5.66 a share in 2018 to $6.11. The stock trades at an attractive 15.7 times that 2019 estimate.

Recommendation in TSI Dividend Advisor: Texas Instruments is a buy.


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