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Texas Instruments Awards Shareholders With Another Massive Dividend Increase

By Daniel Sparks – Sep 21, 2018 at 12:46PM

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This hot dividend stock just got even better.

While analog semiconductor company Texas Instruments' (TXN -0.43%) stock has received a lot of attention for its 130% gain over the past three years and its 28% rise in the past 12 months alone, the technology stock's dividend growth has been impressive, too. Over the last three years, the payments Texas Instruments makes in dividends each year have risen by 77%. Further, over the last five years, the company's dividend has averaged an annualized growth rate of 24%.

As Texas Instrument's business continues to do well, the company made sure to keep up its strong dividend increases again in 2018. On Thursday, Texas Instruments announced another robust double-digit dividend increase as well as an enhanced share repurchase program.

A roll of 100 dollar bills

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Another 24% increase

Texas Instruments' new dividend, payable on Nov. 19 to shareholders of record on Oct. 31, represents a 24% increase over last year's dividend. This growth is equal to both the company's 24% dividend increase last year and the company's average annualized dividend growth over the past five years. 

The dividend increase brings Texas Instruments' quarterly dividend to $0.77, up from $0.62. This translates to $3.08 annually. The sharp hike in Texas Instruments' dividend gives the company a forward dividend yield (planned dividend payments as a percentage of a company's stock price) of 2.8% -- well ahead of the average dividend yield of stocks in the S&P 500 of 1.9%. 

Management also said on Thursday that Texas Instruments' board authorized an additional $12 billion for repurchases of its stock. This adds to the $7.4 billion remaining from the company's previously authorized repurchase program.

Management used the earnings release as a chance to remind investors how serious it is about returning capital to shareholders:

Dividend increases and share repurchases are integral pieces of TI's capital management strategy, reflecting the company's continued strength in free cash flow generation and its commitment to return excess cash to stockholders.

A good bet for dividend investors

Impressively, Texas Instruments has been able to not only deliver strong dividend increases and maintain a healthy dividend yield, but do this without paying out a substantial portion of its free cash flow. Paying out just 41% of its free cash flow in dividends, Texas Instruments has plenty of room for more dividend growth over the long haul.

The company is able to pay out such a substantial dividend while paying out less than half of its free cash flow thanks to Texas Instruments' standout business momentum recently. Texas Instruments' trailing-12-month free cash flow has soared 42% year over year. In addition, the company's most recent quarter continued to demonstrate its ability to grow its business nicely; revenue during the period rose 9% year over year, and earnings per share rose 36%. 

The company's strong performance over the trailing 12 months "reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter Analog production," said Texas Instruments CEO Rich Templeton in the company's most recent earnings call. 

Texas Instruments' strong business and its track record of 15 years of dividend increases make the semiconductor company an excellent dividend stock.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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