Want $15,000 in Passive Income? Buy 3,265 Shares of This Dividend Stock

Dividend stocks tend to outperform the broader market, especially those that consistently raise their payout over time. For instance, the S&P 500 has fallen 18% from its high, dragged deep into correction territory as investors hedged against the risk of recession. Meanwhile, the Vanguard High Dividend Yield ETF is down just 8%.

Given the current market turbulence, now looks like a great time to add a high-quality dividend stock to your portfolio, and Texas Instruments (TXN -2.44%) checks that box. In fact, buying 3,625 shares today would generate $15,000 per year in passive income, while still leaving plenty of room for price appreciation.

Here's what you should know.

A sizable market opportunity

What do smartphones, electric cars, and industrial robots have in common? What about virtual reality headsets, blood glucose meters, and solar panel systems? They all rely on chips designed (and in most cases manufactured) by Texas Instruments. The company probably supplies semiconductors for dozens of things you use on a daily basis: the dishwasher and refrigerator in your kitchen, the lawn mower and power tools in your garage, the television in your living room, and the list goes on.

It benefits from a broad portfolio and a diverse customer base. It makes 80,000 products in the analog chip and embedded processor verticals, and it serves 100,000 clients, primarily in the industrial, automotive, and personal electronics end markets. Analog chips are used in every electronic device, and embedded processors are used in most, and Texas Instruments is the leader in both categories.

Not surprisingly, that has translated into solid financial results over the long haul.

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Thanks to management's disciplined approach to capital allocation, free cash flow is growing more quickly than revenue, meaning Texas Instruments is becoming incrementally more profitable. Perhaps more impressive, cash from operations has actually grown at 12% per year over the same time frame, but the company is investing aggressively to expand its manufacturing capacity, and that has cut into free cash flow.

A durable competitive edge

Beyond its expansive portfolio, Texas Instruments handles most chip fabrication, assembly, and testing internally. It currently owns 15 manufacturing sites, which allows the company to control costs and inventory to a greater degree than many rivals.

Texas Instruments operates two fabrication sites that use 300-millimeter technology, meaning chips are built on 300-millimeter silicon wafers. That's much more cost effective than the 200-millimeter technology used by most rivals. Chips built on 300-millimeter wafers cost about 40% less.

And the company is working to extend its advantage. By early 2023, it will have four operational 300-millimeter fabrication facilities, and another will be on line by 2025. While those efforts will be a headwind to cash flow in the short run, they should strengthen its already durable competitive edge.

A great stock for income investors

Last year, analog chip sales reached $74 billion, and Texas Instruments captured 19% market share. The next-closest competitor, Analog Devices, captured 12.7% market share, but Analog Devices posted slower revenue growth than Texas Instruments, which means it's losing ground.

The analog chip industry is expected to grow 12% a year through at least 2023, surpassing $93 billion. Given its competitive edge, Texas Instruments is well positioned to maintain (or even extend) its leadership. More broadly, the proliferation of electronic devices should be a tailwind for the company, and that should translate into share price appreciation for investors.

And the stock pays a dividend of $4.60 per share annually, which works out to a dividend yield of 2.91%. That means $515,500 invested in the stock today -- roughly 3,265 shares -- would generate $15,000 in passive income each year. (Or if you have $5,000 to spare, that's $145.50 a year.) And if history is any indication, that figure will rise over time -- Texas Instruments has increased its quarterly payout by 25% per year since 2004.

That's why this high-dividend stock looks like a smart buy right now.