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Buy This Tech Stock If You Are Looking for Dividends

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Tuesday, 26 March 2019 04:23 PM Current | Bio | Archive

The technology sector has led the market’s gains in the years since the Great Recession ended. During the current bull market, now nearing 10 years old, tech stocks have widely outperformed other sectors.

Not only are tech stocks widely acknowledged for their growth potential, many tech stocks have also begun paying sizable dividends to shareholders. One notable tech stock that still does not pay a dividend is Amazon (AMZN), despite the e-commerce giant growing revenue and profits at a rapid pace.

Amazon is not likely to pay a dividend any time soon, which means investors interested in dividend-paying tech stocks should look elsewhere. Instead, Texas Instruments (TXN) is a much more suitable stock for investors interested in a strong yield and dividend growth.

Amazon Is Still In Growth Mode

Amazon rose to dominate the online retail industry, and now has its eyes on several other categories, a few of which include media and health care. Amazon recorded nearly $233 billion of revenue in 2018, and the company has been very successful growing its profits, thanks in large part to its high-margin Amazon Web Services unit. For 2018, net sales grew 31%, while its earnings per share jumped to over $20.

In theory, this gives Amazon the ability to pay a dividend if it chose to. But it likely will not pay a dividend, as the company continues to reinvest heavily in growth initiatives. Despite reaching a market capitalization of nearly $800 billion, Amazon is very much still a growth story, which typically discourages management from announcing a dividend payment to shareholders.

As a result, investors looking for dividends will have to look elsewhere in the tech industry.

Milk This Cash Cow For Dividends

Texas Instruments is a semiconductor company. It has a focused operational structure. It previously had a diversified business model across multiple end markets, but in recent years has streamlined its structure to focus on just two segments—analog and embedded processing equipment. The company has dedicated most of its research and development investment to these two categories, as they have the strongest growth potential while requiring less capital investment.

The result of these competitive advantages is that Texas Instruments is a cash flow machine. Free cash flow totaled $6.1 billion in 2018 for Texas Instruments, up 30% from 2017. Free cash flow represented 38% of company revenue for the year. This is an incredible rate of free cash flow conversion, which shows the positive impact of the company’s operational strategies.

Such strong cash flow allows Texas Instruments to pay a hefty dividend to shareholders, currently yielding 2.9%. Its nearly 3% yield beats the average 2% yield of the S&P 500 Index, and Texas Instruments is a high-growth dividend stock. In 2018, Texas Instruments raised its dividend by 24%, marking the 15th consecutive year of dividend increases. Over the last five years, the company increased its dividend by 21% per year.

While investors interested solely in growth will likely continue to ride Amazon stock, those investors interested in dividend should give Texas Instruments a closer look.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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The technology sector has led the market’s gains in the years since the Great Recession ended. During the current bull market, now nearing 10 years old, tech stocks have widely outperformed other sectors.
tech, stock, dividends, buy, texas, instruments
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2019-23-26
Tuesday, 26 March 2019 04:23 PM
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