The past year has been a terrible one for Skyworks Solutions (SWKS 1.83%). Share prices of the chipmaker have crashed close to 50% thanks to the overall gloom in the stock market, as well as weakness in smartphone sales this year.
Known for supplying its chips to major smartphone original equipment manufacturers (OEMs) such as Apple (AAPL 1.27%) and Samsung, Skyworks' recent results haven't been confidence-inspiring, either. However, savvy investors looking to buy a tech stock with a nice dividend yield that could deliver healthy upside in the long run should take a closer look at Skyworks, especially considering its enticing valuation.
Let's examine the reasons why this beaten-down stock looks like a solid bet right now.
Skyworks Solutions pays an attractive dividend
Skyworks Solutions sports an attractive dividend yield of 2.25%, which is higher than the technology sector's average yield of 1.37%. It is worth noting that Skyworks has increased its dividend substantially over the last seven years. The company's quarterly dividend payout has grown from $0.11 per share in 2014 to $0.56 per share currently.
Skyworks' last dividend increase was announced in July 2021, when management hiked the quarterly payout by 12%. More importantly, its low payout ratio indicates that there is room for growth. The company has a dividend payout ratio of 19%, which means that its earnings are strong enough to support the current payout.
Moreover, analysts are forecasting double-digit annual earnings growth from Skyworks for the next five years, which would be an improvement over the bottom-line growth it has clocked in the last five years. As such, the company seems poised to continue increasing its dividend. CFO Kris Sennesael indicated the same on the May earnings conference call when responding to an analyst's query.
In all, it won't be surprising to see Skyworks becoming a top dividend play in the long run as it increases its payout, but this is not the only reason why you should be buying the stock.
The company has a big growth driver
Skyworks Solutions is facing headwinds on account of supply chain disruptions, which was evident from the company's fiscal 2022 second-quarter report that was released in May. Skyworks' CFO pointed out on the earnings call that it hasn't been able to "fulfill the strong end customer demand" thanks to the disruptions.
Despite the headwinds, Skyworks is expected to finish fiscal 2022 with an 8% increase in revenue to $5.5 billion and a 6% jump in earnings to $11.10 per share. But it won't be surprising to see the company grow at a faster pace thanks to Apple, which accounted for 54% of its total revenue in fiscal Q2.
The demand for Apple's iPhones remains robust in the 5G era and that's the reason why Skyworks is witnessing healthy demand from its largest customer. The company's revenue from Apple was up more than 20% year over year in the March quarter.
Skyworks' relationship with Apple can give the former a solid boost in the second half of 2022 and beyond. That's because Apple may be looking to increase its iPhone production this year in a bid to cater to the millions of users that are currently in an upgrade window. Foxconn, which assembles iPhones for Apple, recently raised its full-year outlook and expects to see substantial year-over-year growth in the third quarter.
This doesn't seem surprising, as around 240 million of Apple's installed base of 1 billion iPhones are at least 3.5 years old, according to Wedbush Securities analyst Daniel Ives. As a result, Apple could increase its iPhone builds this year to satisfy the solid end-market demand. But more importantly, Apple's iPhone shipments could keep heading higher in the 5G era thanks to its command of this market.
Apple dominated the 5G smartphone market with a 31% share in 2021, according to Strategy Analytics. It looks well-placed to lead in this space in 2022 as well thanks to the launch of the 5G-enabled iPhone SE, which is expected to sell 30 million units. Apple's solid share of the 5G smartphone market bodes well for the company, as shipments of devices supporting the latest wireless standard could hit 1.18 billion units in 2025, compared to 549 million last year, according to third-party estimates.
Investors should also note that Apple has started using more of Skyworks' content in its smartphones. So Skyworks could benefit from a mix of stronger volumes and pricing in the 5G era from its biggest customer.
Looking beyond Apple
While Skyworks does rely on Apple for a large chunk of its revenue, it is worth noting that the company's non-mobile business is also gaining traction. Its revenue from the broad markets segment -- which includes different verticals such as automotive, the Internet of Things (IoT), aerospace and defense, and Wi-Fi routers, among others -- jumped 36% year over year to $523 million in fiscal Q2. The segment produced 39% of the company's total quarterly revenue.
Skyworks expects this segment to clock 40% year-over-year growth once again in the June quarter. More importantly, the fast-growing markets that Skyworks serves through its non-mobile business may lead to impressive long-term growth. For instance, Skyworks provides various IoT solutions such as home security, automation, and connected homes. Now, the smart home market is expected to post 21% annual growth through 2028, which is just an indication of the massive opportunity at hand in the broad markets business.
And finally, Skyworks' cheap valuation is the icing on the cake. The stock is trading at 11.6 times trailing earnings and 7.6 times forward earnings. These multiples represent a significant discount to the S&P 500's earnings multiple of 21, which tells us that now is a good time to buy this tech stock, as it can deliver a healthy mix of price upside and dividend income.
