Dividend stocks seem to be experiencing a renaissance in this environment of high market volatility and low interest rates. It is intuitive to most that a good dividend increases a stock’s defensive posture and mitigates exposure on the downside. Additionally, studies based upon the S&P 500 have shown that approximately 44% of portfolio returns historically come from dividends.
We can remember not too long ago when it was an oxymoron to equate dividends with semiconductor stocks, however, with the five companies profiled below you are able to safely combine above market rates of current income (and the possibility of continued dividend growth) with the prospect of significant price appreciation. Here are the five dividend-paying chip stocks that meet our criteria for current yield, safety of dividend, earnings growth and potential price appreciation:
Microchip Technology, Inc. (MCHP) 4.60% Yield
Microchip is a $5.84 billion market cap chip company that designs, manufactures and sells semiconductors for various microcontroller, analog and Flash-IP solutions. This shareholder-friendly company initiated quarterly cash dividends in the third quarter of fiscal 2003. The current dividend is 34.7 cents per quarter which annualizes to $1.39 per share. Additionally, they have an ongoing share buyback program to return additional funds to shareholders. Microchip was one of the few semiconductor companies that remained profitable throughout the global financial crises. Revenue last year was $1.5 billion. The dividend is comfortably covered by earnings with a payout ratio of just over 60%.Earnings are estimated at $2.11 per share for the current fiscal year and the current estimates for the next fiscal year have earnings rising further to $2.29. With a stock price of $30.71 and a dividend of $1.39, Microchip provides a very healthy current yield of 4.60%.
Intersil Corp. (ISIL) 4.60% Yield
Intersil is a $1.39 billion dollar market cap chip company that designs, manufactures and sells high performance analog and mixed signal semiconductors. Dividends were initiated in 2003 and the company has continued payouts for shareholders ever since. Revenue for the company came in last year at a respectable $821 million. The dividend is comfortably covered with a payout ratio of just over 60%. Earnings estimates are at $.61 per share for the current fiscal year and current estimates for the next fiscal year have earnings rising to .76. With a stock price of $11.03 and a dividend of $.48 the company’s shares yield 4.6%.
Maxim Integrated (MXIM) 4.20% Yield
Maxim, a manufacturer and marketer of linear (analog) and mixed-signal semiconductors, is a widely followed name in the sector, sporting a $6.42 billion market cap. The company was incorporated in 1983 and had revenue last year of almost $2.5 billion. Maxim has been repurchasing stock since October 2008 and last year repurchased approximately 10.9 million shares of its common stock for $231 million (the program remains ongoing for the current fiscal year). The dividend is comfortably covered by earnings with a payout ratio of 60% and earnings are estimated to increase from $1.73 per share for the current fiscal year to $1.96 for the next fiscal year. With a stock price of $21.73 and a dividend of $.88, Maxim provides a yield of 4.20% for shareholders.
Intel Corp. (INTC) 4.20% Yield
Intel is a $100 billion plus market cap chip company that designs, manufactures and sells microprocessors and a vast variety of other semiconductors. Being the largest and best known chip company in the world, Intel requires no further introduction. This blue chip company has paid dividends since 2006 and has increased the dividend each year since it was instituted. Last year Intel generated $4.0 billion in cash from operations on revenues of $48.5 billion and repurchased 93 million shares of common stock for $2.0 billion while also paying out cash dividends of $961 million. The dividend is especially well covered by earnings as the payout ratio is only 25%, leaving plenty of room for further payout increases. Earnings are estimated at $2.38 per share for the current fiscal year and current estimates for the next fiscal year have earnings rising to $2.50. With a stock price of $19.93 and a dividend of $.84 Intel provides a generous yield of 4.20 %, which is unrivaled among other big-cap techs.
Linear Technology (LLTC) 3.70% Yield
Linear Tech is a $6.17 billion market cap chip company that designs, manufactures and markets a line of linear (analog) integrated circuits. Linear Tech was founded in 1981 and had revenue last year of $1.5 billion. On top of the dividend payout, the company returned cash to shareholders by repurchasing over 500,000 shares of its common stock in the latest fiscal year. The dividend is well covered with a payout ratio of just 38%. Earnings are estimated at $2.14 per share for the current fiscal year and current estimates for the next fiscal year have earnings growing to $2.40. With a stock price of $26.61 and a dividend of $.96 Linear Technology offers a yield of 3.70%.
All five of the semiconductor companies discussed herein provide investors with impressive current yields through dividends that are both sustainable and growing, while at the same time providing the opportunity for significant price appreciation not normally available for stocks providing these types of yields.
Additional upside is provided due to the fact that each company is also expected to experience substantial bottom line growth in EPS both this fiscal year and next. These dividend paying chip companies provide investors the best of both worlds, with rich dividends and growing businesses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.