Nvidia's Dividend: One Year Later

Dec. 3.13 | About: Nvidia Corporation (NVDA)

Nvidia (NASDAQ:NVDA) recently announced an increase to its annual dividend. This marks Nvidia's first dividend increase since it started paying dividends in 2012. Nvidia reported its fiscal third-quarter results in November. The earnings fell more than 40% but the company boosted its dividend.

This article was written last year when Nvidia joined the dividend club. It is time to revisit the story keeping the recent increase in mind. Since the original article used Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM) as comparison metrics, this follow up does the same as well.

New Dividend and Yield: The new annual dividend of 34 cents a share gives NVDA a current yield of 2.2%. As written in the previous article, this yield still places NVDA firmly between Intel's 3.8% and Qualcomm's 1.9%.

Payout Ratio: An increasing dividend and a reduced earnings per share is not an ideal combination for long-term investors but these are still early days for NVDA as a dividend stock. The payout ratio has ballooned to 45%, up from the 36% at the time of the previous review. Intel's payout stands at close to 50% while Qualcomm has the lowest at 35%.

Dividend Growth: The recent increase represents at 13% dividend growth from 2012. NVDA obviously has a long way to go before it catches the attention of dividend and dividend growth investors. Investors will be especially wary of the fact that the bigger chip company Intel hasn't been following the typical dividend growth model. although not all is lost for Intel.

Cash on Hand: NVDA continues to be a cash rich company. Cash now represents 30% of the company's market cap. In other words, investors are paying much lesser than they think for NVDA's forward business. Even though the payout ratio has increased a bit, the cash on hand should be comforting to those looking at NVDA from the income and dividend perspective.

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(Source: YCharts.Com)

Recent Earnings History: NVDA has continued to make a mockery of earnings estimates since we last reviewed them. Except for the very recent disappointing quarter, the reported EPS has been way higher than the estimates. This suggests that the company is really not expected to do as well as it has been, which is exactly what value investors look for.

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(Source: Finance.Yahoo.Com)

Forward Looking Earnings: Looking forward, NVDA is expected to make 67 cents per share for 2014, which represents a 12% cut from the current 77 cents per share. While one can expect NVDA to surprise on the higher side given the recent history, investors shouldn't expect the future dividend growth to be as high as the recent one.

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(Source: Finance.Yahoo.Com)

Forward Looking Business Thesis and Conclusion: It is no secret that NVDA is still lagging when it comes to mobile and tablet presence. Intel and Qualcomm, being much bigger and richer companies, have made their intentions clear about the tablet and mobile space. NVDA however is not being idle, with recent announcements such as Tegra Note and Tegra 4i (for the LTE smartphones). Not to forget the Tegra powered tablets that are being sold in the market by other companies. NVDA's capital expenditures to make Tegra successful have taken its toll but things might just be looking up.

After all, this is a company/stock from which not much seems to be expected. And there in lies the potential for investors to reap rewards. And the income is handy enough to wait for a potential turnaround. Perhaps NVDA sees the potential in its stock and hence the recent $1B buyback?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.