The real-money Inflation-Protected Income Growth portfolio owns shares of Texas Instruments (NASDAQ:TXN). Texas Instruments, like every company in that portfolio, earned its place because at the time it was purchased:
- Its shares appeared to be reasonably priced.
- Its balance sheet looked solid.
- It had a covered dividend with a history of increases.
- That dividend looked capable of continuing to rise.
- The company fit reasonably well within the portfolio from a diversification perspective.
Still, just because a company fit a portfolio at one time doesn't mean it will fit forever. This article reviews the current state of several of the key factors that made Texas Instruments worth owning to determine whether it still has what it takes to retain its spot in the IPIG portfolio.
Based on a discounted cash flow analysis, Texas Instruments' business looks to be worth around $50.0 billion, which is not that far off from its recent market capitalization of $51.1 billion. While the company's market capitalization is a tad bit higher than where the IPIG portfolio would consider buying shares if it didn't already own some, there doesn't appear to be a compelling need to sell based on valuation.
After all, any fair value estimate is based on projections of an unknown future, and nobody has the ability to predict it exactly correctly. Still, it's an estimate based on publicly known data and expectations, and since the company's market price is right around that fair value estimate, there doesn't appear to be a compelling case to sell based on valuation.
Result: Hold, based on valuation.
Texas Instruments has a solid balance sheet, with a debt-to-equity ratio around 0.5. That reasonable debt-to-equity ratio gives the company the flexibility to manage through hiccups that affect every company from time to time. In addition, the company has more than $3.8 billion in cash on its balance sheet, which positions it well for servicing its existing debt while continuing to reward shareholders.
Result: Hold, based on balance sheet.
Texas Instruments currently pays a quarterly dividend of $0.30 per share, which it increased for last November's payment from $0.28. In addition, Texas Instruments has a fairly decent track record of increasing its dividend annually, with a streak going back about a decade. Dividend growth is an important characteristic that the iPIG portfolio actively seeks, and with a payout ratio of 55%, Texas Instruments has room to continue increasing its dividend as is business grows.
Result: Hold, based on dividends.
All told: a company still worth owning
Looking at its valuation, its balance sheet, and its dividend, Texas Instruments still maintains the essential qualities needed to retain its place in the Inflation-Protected Income Growth portfolio. That may change over time, though, depending on the company, its competition, regulatory shifts, the whims of the market, and changes in its operating environment that affect its ability to thrive. As a result, the company will again be reviewed in the future to make sure it still deserves a spot in the portfolio.
To follow the IPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the IPIG portfolio, simply click here.