Texas Instruments‘s (NASDAQ: TXN) dividend history is long, and it might make a great addition to an income portfolio. Let’s take a look at the business, dividend history and payout safety going forward.
Business Overview and Highlights
Texas Instruments is a $94 billion business. The company is based out of Dallas, Texas and it employs 29,700 people. Last year, Texas Instruments pulled in $15 billion in sales, which works out to $504,000 per employee.
The company operates within the technology sector and maintains a solid credit rating (A+) from the S&P. This allows Texas Instruments to issue cheap debt to expand operations and finance other initiatives. Texas Instruments has a long list of acquisitions: you can check out a timeline by clicking here. One larger acquisition happened in 2011. The National Semiconductor acquisition brought more than 5,000 new employees to Texas Instruments.
Texas Instruments Dividend History Over 10 Years
The company paid investors $0.41 per share a decade ago. Over the last 10 years, the dividend has climbed to $2.12. That’s a 417% increase! You can see the annual changes below.
The compound annual growth is 17.9% over 10 years… but over the last year, the dividend climbed 29.3%. The increase in dividend growth is a good sign. Texas Instruments might work out as a great income investment. Let’s take a look at the yield.
Current Yield vs. 10-Year Average
Texas Instruments’s dividend history might make it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers.
The dividend yield comes in at 3.19%, which is above the 10-year average of 2.72%. The chart below shows the dividend yield over the last 10 years.
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean-reverting with share price changes.
Improved Dividend Safety Check
Many investors look at payout ratio to determine dividend safety. (This is calculated by taking the dividend per share divided by the net income per share.) So a payout ratio of 60% would mean that for every $1 Texas Instruments earns, it pays investors $0.60.
Payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Texas Instruments’s payout ratio based on free cash flow over the last 10 years.
The ratio is volatile over the last 10 years, and the trend is up. The last reported year shows a payout ratio of 45%. This gives wiggle room for Texas Instruments’s board of directors to raise the dividend.
Closing Thoughts: Texas Instruments Dividend History and Safety
There is room to increase the dividend, but the payout ratio trend doesn’t paint a great long-term picture. However, an over 3% yield isn’t bad in the short-term.
Interested in more dividend research? Click here!
Good investing,
Rob
