It's always a bit alarming when a company that hasn't shown much revenue or profit growth hikes its dividend. Just where is that extra shareholder payout coming from?

This is what's happening with durable IT company Texas Instruments (TXN 1.35%). Last week, it hiked its distribution by 12% to $0.38 per share. That lift is notably higher than the growth rates of some of its key fundamentals.

Source: Courtesy of Texas Instruments. 

Not only that, the company also boosted its share buyback program significantly, expanding the total authorized amount by $7.5 billion. It's going to be dipping more deeply into its coffers starting in the very near future, so should investors be worried?

Cash instruments
Quarterly dividend payments are virtually baked into Texas Instruments' DNA, and raising them is a long-standing habit. The company's been dispensing its payout regularly since 1962 and has increased it annually for the past 12 years, counting this latest hike.

Besides, the company has officially stated an aggressive target for returning its cash: 100% of its free cash flow -- plus "proceeds from exercises of equity compensation minus net debt retirement."

Texas Instruments' revenue figures and bottom lines aren't where they were at the turn of this decade, which is why investors might be concerned. If there's less money coming in, the thinking goes, there shouldn't be more coming out.

But the key figures in the income statement -- revenue and bottom line -- tell only part of a company's financial story. When looking at dividends, we have to consider a business' cash flow, too. After all, P&L items are affected by accounting figures that aren't necessarily accurate gauges of financial health.

On the other hand, a cash flow statement is concerned only with the actual movement of money through the company at a particular time. It's a clear view of how corporate wealth is being created or depleted.

A perusal of Texas Instruments' cash flow paints a different picture than the income statement. Over the past half-decade, the company's trailing 12-month free cash flow -- i.e., cash from operations minus capital expenditures -- just keeps growing, with an increase of nearly 60% (to $3.6 billion) over that span of time.

This is largely because, thanks to a rejigging of its business in favor of less expensive manufacturing, capital expenditures have fallen precipitously. In fiscal 2010, this line item for Texas Instruments was $1.2 billion; last year it was less than a third that amount, at $385 million.

Meanwhile, with a buyback program in place, there are fewer shares to distribute a dividend to. In its press release announcing the new payout and expanded repurchase initiative, the company pointed out that it has reduced outstanding share count by 40% since 2005.

Solid ... for now
So, for the foreseeable future, Texas Instruments' dividend should be safe and its buyback program locked in place. We can, then, probably count on those annual raises for a while.

Further down the road, though, it would be good if the company could get other pertinent fundamentals moving northward again. After all, there's only so much capex saving and slicing a business can do before shareholder payouts start to feel the squeeze.

Texas Instruments' new dividend is to be dispensed on Nov. 16 to shareholders of record as of Oct. 30. It's a comparatively generous one, yielding nearly 3.3% on the current stock price, comparing very favorably to the 2.1% average dividend yield of stocks on the S&P 500.

As for the newly expanded share buyback program, the company did not provide a time frame for its duration.