Passive income can bring some stability to your portfolio. That's particularly nice during periods of macroeconomic uncertainty. With inflation at a 40-year high and interest rates on the rise, the S&P 500 has fallen 14% from its peak and many individual stocks have been hit even harder. Owning a few high-quality dividend stocks can help offset those losses.
With that in mind, Texas Instruments (TXN 5.64%) and American Tower (AMT -0.48%) look like smart long-term investments. Here's why.
1. Texas Instruments
Semiconductor company Texas Instruments is often overlooked by more growth-oriented investors. But it currently pays a quarterly dividend of $1.15 per share, a yield of 2.7%, and the company has hiked the quarterly payout for 18 consecutive years. More importantly, shareholders have good reason to believe that trend will continue.
Texas Instruments is the market-leading manufacturer of analog chips and embedded processors. Those chips may not get the same publicity as graphics processing units, but they are critical to virtually every industry, especially the industrial, automotive, and personal electronics markets. In fact, analog chips are used in every electronic device and embedded processors are used in most. That means Texas Instruments should benefit as electronic devices continue to proliferate.
Image source: Getty Images.
Thanks to soaring demand for semiconductors, the company turned in an impressive financial performance over the last year. Revenue climbed 23% to $19 billion and earnings rose 32% to $8.74 per diluted share. More importantly, Texas Instruments has built a strong moat around its business that should keep it at the forefront of the analog and embedding processing markets.
First, its business model is highly diversified. Texas Instruments makes 80,000 products for more than 100,000 customers. Second, it handles most manufacturing, assembly, and testing internally. That lowers costs and improves supply chain visibility. Finally, some of its wafer fabrication facilities support a 300-millimeter production process -- a term that refers to the diameter of the silicon on which chips are made. That's 40% cheaper than the 200-millimeter process used by most competitors.
For all those reasons, Texas Instruments looks like a market-beating investment over the next decade. Additionally, with a payout ratio of 49%, the company has plenty of room to grow its dividend. That's why this stock is a smart buy.
2. American Tower
Real estate investment trust (REIT) American Tower is a solid dividend stock. The quarterly payout currently sits at $1.40 per share, or a yield of 2.2%. But the company has raised its dividend each quarter for the last decade, and it aims to grow the payout 12.5% in 2022. Better yet, investors looking for passive income have good reason to believe that trend will continue for many years.
American Tower is the market leader in the telecom tower industry. Its portfolio comprises over 219,000 communications sites across the U.S. and international markets, and the company generates revenue primarily by leasing tower space to wireless service providers like AT&T. To that end, its business should benefit from increased demand for wireless coverage and capacity, driven by the proliferation of smartphones and other connected devices.
American Tower continued to churn out solid financial results over the past year. Revenue rose 20% to $9.9 billion and funds from operations skyrocketed 37% to $5.5 billion. More importantly, the company is well positioned to maintain that momentum. Carriers are densifying 4G networks and deploying 5G networks in mature markets like the U.S., and they are upgrading to 4G in less mature markets. Those activities should drive demand for American Tower's real estate for years to come.
Also noteworthy, the company has diversified its portfolio into data center real estate. Last year, it acquired CoreSite Realty for $10.4 billion, bringing its total holdings to 27 U.S. data centers. Given the importance of data centers in the IT world, that move could supercharge its business down the road.
In short, American Tower enjoys a leadership position in a critical market but it also has other opportunities for expansion. That should translate into market-beating returns and steady dividend growth for shareholders.
