Passive income -- money you can earn with little to no effort -- is one key to achieving financial flexibility, and dividend-paying stocks are a top choice for those who seek it. Plenty of companies out there reliably distribute some of their earnings to shareholders every quarter.
After the drubbing the stock market took in the first half of 2022, even some growing tech companies are priced such that their dividends offer lucrative yields. If you're looking for fantastic long-term passive income plays in this market, three Fool.com contributors think Texas Instruments (TXN 1.18%), Logitech International (LOGI 0.98%), and Qualcomm (QCOM 0.97%) should be on your radar.
This semiconductor giant has increased its dividend 50-fold over the past 17 years
Billy Duberstein (Texas Instruments): In this time of uncertainty and rising interest rates, what would investors find attractive in an income-producing asset? Defensive characteristics, a meaningful yield supported by high free cash flow, and the potential to grow through a potential downturn.
Semiconductor giant Texas Instruments has these characteristics in spades. First, the company has been around since 1930, so it's a survivor. It also has a really impressive culture and a record of adaptability. Yet even after 92 years, Texas Instruments still grew revenue by 14% year over year last quarter, and its earnings per share rose by 26%. It also has incredibly high margins, with an operating margin exceeding 51% over the past 12 months, and a 68% return on equity. That's in part due to the company's competitive advantages in 300mm manufacturing, its deep customer relationships, and broad cross-selling opportunities.
These super-high profitability metrics have allowed Texas Instruments to grow its free cash flow per share at a 12% annualized rate since 2004, and have allowed management to increase its dividend payouts at an even higher 25% annualized rate over that time. That's more than a 50-fold increase in the company's dividend since 2004. At today's share price, it yields 2.75%. While I don't expect TI's payouts to grow by another 50-fold over the next 17 years, I still expect them to grow significantly.
Texas Instruments produces a very broad set of mission-critical analog and embedded chips for a wide array of customers and industries. As part of its long-term strategy, it has targeted the industrial and automotive segments over the past decade. That's because industrial machines and automobiles contain more and more semiconductor content with each generation, propelling TI's long-term growth. Last year, sales for industrial and automotive applications accounted for 62% of its revenue, up from 42% in 2013.
With booming demand for auto and industrial chips today, Texas Instruments is investing in the future. It has two plants coming online in the near term, its RFAB2 facility in Texas later this year, and its Lehi fab in Utah early next year. Moreover, TI began construction of a giant new four-fab complex in Sherman, Texas, that's set to come online in 2025. When those facilities are producing, growth should follow -- and high-margin growth at that.
With a solid yield, a reasonable price-to-earnings ratio in the high teens, and solid growth prospects over at least the next decade, Texas Instruments is a sleep-at-night semiconductor stock that should pay shareholders more in dividends each and every year.
Just one check a year, but it's a generous one
Anders Bylund (Logitech International): Computer accessories maker Logitech International runs an unusual dividend program. Instead of distributing payouts every quarter as most U.S. dividend payers do, this Swiss company issues them just once a year. But those annual checks are juicy, and management has been increasing the payouts every year since 2014.
Logitech's payouts have more than quadrupled from $0.23 per share in 2013 to $1.05 per share in September's pre-announced issue. This year, it's coming through with a 10% step-up. Shareholders still have to approve the proposed payout at Logitech's annual meeting earlier that month, but I see no reason why they would reject it.
It's true that Logitech's business is sputtering in 2022. The company has absorbed higher costs for freight transport and rising component prices, along with manufacturing halts due to COVID-19 lockdowns in China. Then again, every company is dealing with those issues now, and Logitech still generated $100 million in operating cash flow during its fiscal 2022 fourth quarter, which ended on March 31. That's more than enough to keep its dividend payouts rolling -- those amounted to $159 million in fiscal 2022, while its operating cash flows added up to $298 million.
So Logitech delivers a robust and growing dividend with an effective yield of 1.7% at today's share price, fully financed by incoming cash flows even during a challenging period. Meanwhile, the stock trades nearly 60% below its 52-week high at a valuation of just 11 times forward earnings estimates. What's not to love? Buy this stock at a discount, and start collecting those generous dividends as they grow larger year by year.
Income and growth from the leader in mobility
Nicholas Rossolillo (Qualcomm): If you're looking for a semiconductor company that's well-entrenched in the fabric of the economy, look no further than Qualcomm. Sure, a lot of investors focus on Apple's (AAPL 0.33%) decision to start developing its own chips, and other tech giants have begun experimenting with in-house designs, too. But there's good reason why Qualcomm remains so dominant in the mobile chip world. It's been doing this for decades and has a technological edge over its competitors.
Of course, a consumer goods-centric business like Qualcomm's can have issues. Smartphone and tablet sales are highly cyclical, and the company's booming growth over the last couple of years can be chalked up to a tidal wave of upgrades to 5G network-ready devices. Most of the world has yet to upgrade to devices that use the faster new wireless tech, but eventually, the 5G growth cycle will fade.
But today's Qualcomm is not the Qualcomm of the 2010s. Under the leadership of CEO Cristiano Amon and CFO Akash Palkhiwala, it's charging into new arenas like industrial IoT and the automotive sector. Each of these segments currently accounts for a fairly small portion of its sales. IoT contributed 15% of revenue in the last quarter (including its licensing and royalty business), and automotive was just 3%. However, year over year, IoT sales grew by 61%, and automotive sales rose by 41%.
Beyond providing it with growth opportunities, many of these new markets carry even higher profit margins for Qualcomm, which should provide a further boost to its already-lucrative operating profit margin of 31% over the last 12 months.
Qualcomm's dividend at current share prices yields 2.2%, and it bought back $951 million worth of its stock last quarter alone. If passive income is what you're after, this stock should rank high on your short list of investment options.
