Taiwan Semiconductor: A High Tech Dividend-Paying Stock

| About: Taiwan Semiconductor (TSM)

By Jonathan Yates

For a dividend paying stock, traditionally an investor would not search for companies in the high tech sector.

Many tech companies felt that capital that could have gone to shareholders in the form of a dividend payment was better deployed for research and development, or in buying a new company.

That thinking has now evolved to the betterment of shareholders; many high tech concerns are now providing an income component to investors. Taiwan Semiconductor (NYSE:TSM) is a high tech, dividend-paying stock that offers something for income, dividend and growth investors.

As a dividend-paying stock, Taiwan Semiconductor has a 3.71% yield. That tops the income investors receive from other high tech dividend-paying stocks such as Apple (NASDAQ:AAPL) and Oracle (NASDAQ:ORCL) at 0.88%. Google (NASDAQ:GOOG) is old school and does not even pay a dividend.

In addition to its high-dividend yield, Taiwan Semiconductor has a high profit margin and high return on investment. These are very important for both enabling and enduring the dividend income stream for a company.

The profit margin for Taiwan Semiconductor is 31.48%, which is very strong. By contrast, the profit margin for Apple is 27.13%. The return-on-investment for Taiwan Semiconductor is about one-third above the average. High profits and ROIs are reassuring for investors, in that plenty of cash is being generated to fund both expansion and the dividend.

The robust profit margin and return-on-equity make Taiwan Semiconductor very appealing as a dividend-paying stock. For income investors, the payout ratio is critical as it offers insight into whether the dividend yield is sustainable, and if there is enough cash flow to raise the dividend in the future or initiate share buyback programs.

The payout ratio for Taiwan Semiconductor is around the historic payout ratio of 52%, so you can feel secure in the dividend component of the equity. Adding to its ability to maintain its dividend is that Taiwan Semiconductor is positioned well with very low debt and a blue-chip roster of clients.

The shareholders of Taiwan Semiconductor have been rewarded with both capital gains and a generous dividend yield in 2012. Year to date, Taiwan Semiconductor is up 8.13%. The last week of market action saw it rise by more than 4%. Now trading around $14.10 a share, the mean analyst target price over the next year for Taiwan Semiconductor is $14.38.

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