Should Income Investors Buy The Tech Sector's Fastest Growing Dividends?

Includes: ISIL, TXN, WSO
by: Black Coral Research

We've written about a number of tech giants such as IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG), which are popular among investors and known for their growth potential. Today we wanted to share 3 lesser known technology companies that might appeal to income investors looking to add the technology sector to their portfolio. Below are the three technology companies with the highest average dividend growth rates in the sector. We took a look at each to determine which offered the most potential for investors.





Payout Ratio

Dividend Growth Rate


Intersil Corporation






Texas Instruments, Inc.






Watsco, Inc.






Intersil Corporation, (NASDAQ:ISIL), Intersil Corporation designs, develops, manufactures and markets analog, mixed-signal and power management integrated circuits (ICS) for applications in the industrial and infrastructure, personal computing, and consumer electronics markets.

  1. Net Income - The quarter's GAAP net income was $2.5 million or earnings per share of 2 cents compared with a net loss of $3.3 million or 3 cents per share in the comparable quarter last year.
  2. Break Above Moving Average 200 - Using technical analysis weighting, this event is important because a break of the moving average can signify a change in trend, and in this case, it is bullish.
  3. Revenue - The company reported revenues of $131.7 million, which is down 15.6% compared to last year and 4.2% sequentially. This result sits near the low end of management's guidance of $131-$138 million.
  4. Future Forecast - Although performance has been challenging, new products and design wins in the quarter will likely drive demand for light sensor products going forward. Company restructuring activities will reduce fixed costs to improve margins.
  5. Free Cash Flow - Taking a closer look at the free cash flow charts, we can see a slight dip followed by recovery in free cash flow. This happened because the company reduced its long-term debt, followed by a capital investment in February.

Source: Y Charts

Texas Instruments Inc. (NYSE:TXN) Texas Instruments engages in the design, manufacture and sale of semiconductors to electronics designers and manufacturers worldwide. The company operates in three segments: Analog, Embedded Processing and Wireless.

  1. Release of Products - ADS5409 was just released and with its 80% decrease in space used, it ensures high performance even though it is smaller.
  2. Revenue - First quarter revenue for 2013 was down $2.88B, or 8% compared to the same quarter last year of $3.12B.
  3. Net Income - An increase of 37% compared to last quarter's $265M, while EPS was raised 45% from $0.22 per share to $0.32 per share.
  4. Free Cash Flow - Texas Instruments might be one of the biggest companies among semiconductors, with cash and short-term investments of $3.9B at hand. Its free cash flow indicates that Texas has substantial cash to plan for new investments or repay debts.

Source: TXN 1Q13 financial results

Watsco Inc. (NYSE:WSO) Based in Miami, Florida, Watsco is a $2.6B market cap HVAC distributor in the United States, Canada, Mexico, Caribbean and Latin America, with 577 locations. About 85% of revenues come from residential HVAC markets, 8% from commercial and 7% from refrigeration. Watsco operates in a semi-decentralized manner, with individual subsidiaries operating largely autonomously. Watsco is the largest independent distributor of residential HVAC equipment in North America, with about a 10% share of a $30B market.

  1. Earnings - WSO reported first quarter 2013 adjusted EPS of 39 cents, up 70% from 23 cents earned in the corresponding quarter last year.
  2. Future Expectations - Goldman Sachs analysts expect residential HVAC to grow at a 9% CAGR through 2014. Albert Nahmad, Watsco's President and CEO said "Watsco delivered strong earnings growth and margin expansion from a combination of increased sales, better selling margins and operating efficiencies. As we head into the summer selling season, we are focused on our basic fundamentals - gaining share for our supplier partners, improving operating efficiency and having the products and people in place to best serve our contractor customers. We expect 2013 to be a record year for our company."
  3. Revenue - Revenue rose 13% to $713.6 million from $633.5 million.
  4. Cash Flow - Decline of cash and cash equivalents from December 31, 2012 to March 31, 2012 of $73.8M to $22M. The company's build up of operation activities of $17.5 was typical prior to the selling season.

Recommendation: Stocks in the tech sector sustain strong performance when there is innovation and the company makes investments to invent. In this case, Texas Instruments might be the strongest in terms of cash and short-term investments that give them more flexibility. They also have the capacity to allocate expenses, but current market demand might push the company profit in the future. Watsco was the best out of three in relation to the housing market recovery, as more growth in the residential sector means more potential for Watsco.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TXN over the next 72 hours.

Business relationship disclosure: Black Coral Research is a team of writers who provide unique perspective to help inspire investors. This article was written Hans Centena, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article. Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.