I'm waiting to buy the high yield semiconductor companies because I believe better prices are ahead. June's US ISM Manufacturing PMI coming in below 50 was worrisome. A plunge from May's reading of 53.5 to June's reading of 49.7 is quite a drop. Prior to June this index had crossed below 50 from above 50 only 6 times in 11 years: Aug. 2000, Oct. 2002, Feb. 2003, Jan. 2007, Dec. 2007, and Feb. 2008.
To depict the manufacturing PMI data on the same scale as GDP I subtracted 50 from each reading. For example, June's reading of 49.7 minus 50 shows as a -0.3 on the graph below.
I'm not expecting a Lehman like crash in the economy like 2008-2009 or even a relatively mild recession like 2001-2002, but a market correction somewhat like last summer could be in the cards. If so two high yielding semiconductor companies stand out as buys at slightly lower prices.
Microchip Technology (MCHP)
2nd Qtr. sequential revenue guidance - up 3% to 7%. Dividend History - Fiscal year ending March 31 of the next year: 2008 - $0.965; 2009 - $1.205; 2010 - $1.346; 2011 - $1.359; June 2012 - $0.35.
Forward annual dividend is $1.40/share or 4.5% based on Wednesday's closing price of $31.39.
Target Price $30.00.
Microchip's large dividend should protect from more downside risk like last summer.
2nd Qtr. sequential revenue guidance - up 2% to 9%. Dividend history - Fiscal year ending on Dec. 31 of the same year: 2007 - $0.45; 2008 - $0.5475; 2009 - $0.56; 2010 - $0.63 ; 2011 - $0.782. Mar. 2012 - $0.21; Jun. 2012 - $0.21; Sep. 2012 - $0.225
Forward annual dividend is $0.90/share or 3.5% using announced September 2012 quarterly dividend of $0.225. Based on Wednesday's closing price of $25.39.
Target Price between $23 to $25
Note: Intel's forward dividend of $0.90 is 15% higher than in 2011 and should provide more downside protection than last year.
Both Microchip and Intel are solid semiconductor companies paying relatively high dividends. With our annual summer volatility and the recent ISM PMI weakening, I suspect both could be bought at slightly lower prices sometime this summer. Therefore both will be on my summer buy watch list.
Data from Companies 10Q's and 10K's.