It's always nice to have stocks in your portfolio that offer both the opportunity for share price appreciation as well as a dividend, so that in a more bearish market, the dividend gives you a nice cushion and in more bullish markets, the dividend is icing on the cake. Without further ado, here's my list of dividend paying semiconductors that could represent a good value at these levels:
1. Intel Corporation (INTC): This is the behemoth of the semiconductor industry. Despite its reputation for supplying most of the world's PC and data center processors, it has a slice in almost every area of computing from solid state drives to compilers. Intel also owns its own manufacturing facilities for its CPUs as well as NAND flash, giving it a significant cost and technological advantage over its fabless peers.
The company trades at a modest 10.95 times earnings, pays a $0.90/share yearly dividend, coming out to 3.25% yield at current prices. Intel has increased its dividend three times in the last 18 months and has aggressive share buyback programs in place. In addition, the payout ratio is a modest 34%, meaning that while Intel is returning cash directly to shareholders, it is also investing in its business, making it an excellent stock for both dividends and price appreciation.
2. Microchip (MCHP): Microchip manufactures micro-controllers, memory and analog semiconductors. The company's products are used primarily in embedded control applications. The stock has pulled back along with the rest of the semiconductor sector and now sports an attractive $1.4/share yearly dividend which comes out to a 4.51% yield at the most recent closing price. The company also has a strong balance sheet, with a ~$1B net cash position, and currently trades at around 18 times trailing earnings.
One slight cause for concern is that the year-on-year quarterly earnings have shrunk in the most recent quarter. With a payout ratio of 84%, it pays to monitor the earnings and free cash flow going forward to ensure that this dividend is sustainable.
3. Taiwan Semiconductor Manufacturing Corporation (TSM): Taiwan Semiconductor has been one of the chief enabler of the "fabless" model in the semiconductor industry. As the costs of building and maintaining a semiconductor fab have risen, it has become more difficult for smaller players to compete effectively against the behemoths. So what Taiwan Semiconductor does is manufacture the semiconductor designs for the fabless outfits. Clients of Taiwan Semiconductor include Advanced Micro Devices (AMD), Qualcomm (QCOM) and NVIDIA (NVDA), among many others. In fact, the company's latest 28nm manufacturing process is so popular that it cannot meet demand, and will be expanding capex to satisfy the growing manufacturing need.
After the recent pullback from its multi-year highs, the current price of $13.77 and a dividend of $0.52/share give it a respectable 3.77% yield. The stock seems reasonably priced as it trades at about 16 times earnings. The payout ratio is 48%, which indicates that the dividend is sustainable even as it invests in greater capacity and future manufacturing nodes.
Disclosure: I am long NVDA.
