For NVIDIA (NVDA -10.01%) shareholders, the past year has been fantastic. The stock has soared 190%, with all of the company's segments firing on all cylinders.
The core graphics card business is booming, with PC gaming proving to be a bright spot in an otherwise dismal PC market. Enterprise use of NVIDIA's products is growing fast, with cloud computing companies turning to NVIDIA's Tesla GPUs to enable deep learning and artificial intelligence applications. Sales to the automotive industry are rising as well, with NVIDIA's automotive platforms gaining momentum.
With NVIDIA stock up so much, the dividend yield has been pushed down to less than 1%. NVIDIA yields just 0.74% at the moment, and while there's room for dividend growth, dividend investors would be wise to look elsewhere. Here are two alternative semiconductor stocks that offer more attractive dividends.
Chipzilla
Image source: Intel.
While the PC market has struggled over the past few years, Intel (INTC -2.40%) has held up reasonably well, all things considered. The company expects to grow revenue by a mid-single-digit percentage this year despite the prolonged slump in PC sales, driven mostly by its data center business, as well as smaller segments like IoT and programmable solutions. As dominant as Intel is in the PC CPU market, it faces essentially no real competition in the server CPU market, leading to operating margins in the data center segment in excess of 40%.
Intel pays a quarterly dividend of $0.26 per share, with the stock yielding about 2.95%. The payout ratio is fairly high already, with roughly 45% of Intel's 2015 earnings going toward dividend payments. Dividend growth will likely be slow going forward as the company executes its post-PC strategy, which involves an increasing focus on cloud computing, memory, and the Internet of Things. Intel's EPS has been essentially flat over the past five years, although analysts are expecting growth this year and next.
Intel will be facing more competition in the server CPU market in the coming years, with Advanced Micro Devices, International Business Machines, and various vendors building ARM server chips vying for a piece of the very lucrative pie. But the company has growth opportunities as well, including 3D XPoint, a new type of memory, and field programmable gate arrays, or FPGAs, from recently acquired Altera. While Intel's future earnings growth is uncertain, even slow dividend growth makes Intel a far more attractive dividend stock than NVIDIA.
The king of mobile chips
Image source: Qualcomm.
There was a time when NVIDIA tried to take on Qualcomm (QCOM -2.36%) in the mobile SoC market with its Tegra chips. The company eventually gave up, instead focusing on automobiles and gaming devices like its Shield game console. The intense competition that forced NVIDIA out of the market has also taken a toll on Qualcomm, driving down revenue and profits in fiscal 2015. But the company's lucrative licensing business has prevented profitability from falling too far.
Qualcomm generates the bulk of its operating profit from its licensing segment. During the third quarter, licensing generated $1.75 billion of operating profit, while the segment responsible for selling chips generated just $365 million. Qualcomm expects its total MSM chip shipments to decline by 4%-6% year over year during the fourth quarter, but the company still expects both revenue and profit to grow.
Qualcomm pays a $0.53 quarterly dividend, good for a dividend yield of about 3.4%. Based on the average analyst estimate for fiscal 2016 earnings, Qualcomm's payout ratio is roughly 50%. Like Intel, earnings growth will likely be the main driver of dividend growth going forward. With the global smartphone market growing far more slowly today compared to the recent past, dividend growth may be sluggish going forward. However, with an attractive yield, even slow dividend growth makes Qualcomm a superior dividend stock.
