There aren't many high-powered artificial intelligence (AI) stocks that pay out a meaningful and growing dividend, and Taiwan Semiconductor Manufacturing (TSM 0.84%) is one of them. After retaking the chip manufacturing process lead about a decade ago, Taiwan Semi has been the go-to for leading-edge chipmaking. Tech titans Apple and Nvidia depend on TSMC's manufacturing chops to produce their in-demand chips.
Taiwan Semi has a capital-intensive business, but because it's the only foundry as of today that can produce leading-edge AI chips, it's been able to raise wafer prices and garner high margins. Its dividend comes out of these profits and has grown over the past few years.
NYSE: TSM
Key Data Points
A 1.05% yield, but set to grow 15%-20%
In 2023, Taiwan Semi paid $9.35 billion in dividends to shareholders after making $26.6 billion in net income, good for a payout ratio of about 35%. The 2023 payout equals about a 1.1% dividend yield at today's market cap of $895 billion.
That yield was much higher this time last year, but AI enthusiasm has catapulted the company's stock 64% higher over the past 12 months.
2023 was a down year for Taiwan Semi. Revenue fell 4.5% and net income fell 17.5%. Even though AI chips saw a demand surge, the much larger mature markets in smartphones, PCs, and traditional servers were in a downturn.
Despite this, the company raised its dividend, increasing the quarterly payout from 3 Taiwanese dollars to 3.5 Taiwanese dollars per share in 2023's fourth quarter. For 2024, it will increase the annual dividend from 11.25 Taiwanese dollars per share to "at least" 13.5 Taiwanese dollars per share.
Look for steady increases ahead
The recent raise was a 20% increase and anticipates a strong recovery this year, which management has forecast in the low-to-mid 20% range. The lagging mature chip segments are poised to turn around, while AI chip growth surges unabated. The dividend growth is also in line with Taiwan Semi's long-term growth forecast of 15% to 20%, bolstering management's strategy of a "steadily increasing" payout in the years ahead.
