A little while back, I took a look at graphics specialist NVIDIA's (NVDA 3.46%) capital return program. The company -- in tandem with issuing disappointing financial guidance as it copes with a glut of mid-range graphics processors in the channel -- announced some changes to its capital return program.
Let's take a look at those changes, shall we?
Image source: NVIDIA.
A small step for the dividend
The first change to the company's capital return program was an increase in its dividend by 7% from $0.15 per share on a quarterly basis to $0.16 per share.
Circling back to my previous column on NVIDIA's capital return program, I had written the following:
I'm not expecting NVIDIA to announce that it wants to allocate a large portion of its free cash flow to the dividend anytime soon. However, it seems reasonable to expect that next time the graphics giant announces a quarterly dividend increase, it'll be larger than the $0.01-per-share bump that it delivered the last time it did so.
Clearly, I was wrong. NVIDIA still appears to be playing things quite cautiously with respect to its quarterly dividend. To put things into perspective, analysts expect NVIDIA to generate $7.23 in earnings per share for the entirety of its fiscal year 2019.
The company's current $0.16-per-share quarterly dividend -- which works out to $0.64 per share on an annual basis -- translates into a payout ratio of just under 8.9%, using analyst earnings-per-share consensus for fiscal 2019.
Compared to several of NVIDIA's peers in in the chip industry, that payout ratio is low. Intel (INTC 1.28%), for example, currently pays a quarterly dividend of $0.30, translating into an annual dividend of $1.20. That figure represents about 34.7% of the company's 2017 non-GAAP earnings per share and about 26.5% of its non-GAAP earnings per share guidance for 2018. (As an aside, I'm expecting Intel to announce a solid dividend boost in January.)
Another example of a large chip maker with a generous dividend is Broadcom (AVGO 3.19%). The company currently pays a dividend that works out to $7 per share on an annual basis -- roughly 34% of the earnings per share that analysts expect the company to rake in during 2018. Additionally, on the company's last earnings call, CFO Tom Krause told investors that "we anticipate another substantial increase in the quarterly dividend for calendar 2019."
Over time, I'd like to see NVIDIA increase its payout ratio to be closer to that of the peers mentioned above.
A buyback boost
Although the company's dividend increase was modest, it seemed to be more aggressive with the increase to its share repurchase program.
Back in October, I noted that NVIDIA's buyback program had just $1.16 billion left on it, which I said was "good for less than 1% of the company's market capitalization."
Well, two things have happened since then. First, NVIDIA added $7 billion to that repurchase authorization and said in its Nov. 15 earnings release that its share repurchase program had "a total of $7.94 billion available through the end of December 2022."
On top of that, NVIDIA's share price has come down a lot since then, translating into a much smaller market capitalization. NVIDIA shares are trading at a bit under $154 per share, so the company's market capitalization is around $96 billion.
The $7.94 billion that NVIDIA last reported having left on its buyback program should be good for around 8.3% of the company's total outstanding shares at their current price. That's a far bigger impact than what the prior buyback authorization at the company's previous market capitalization could've had.
What I'll be watching now is how aggressively NVIDIA executes that buyback program over the next several quarters, especially in light of the large share price drop.
