Sunday, November 14, 2010

Dividend Machine Microchip Technology, MCHP

As promised, I will help you learn how to invest for income using dividend machines and I will do that by analyzing one company a week. My intent is not to recommend a stock but to teach you how to analyze a potential dividend machine by reviewing one per week. MCHP is the first of fifty two dividend machines I will profile for your income investing portfolio.

Well defined research

A little well defined research eliminates 90% of the bad companies. Know what you want to know. Keep it simple. Spend a minimum of time with this very simple first screen.

  1. EPS – Earnings per share has to be a positive number because this is how to measure if a company makes money.
  2. Dividend – The amount paid out has to be less than the EPS or earnings per share.
  3. Dividend growth – The most recent dividend should be greater than it was a year ago.
  4. D/E ratio - Debt to equity ratio is one measure of financial stability. The less the debt, the less the risk and the D/E ratio should be low.

MCHP Dividend Machine Fundamentals

MCHP Microchip technology is a smallish company, it has some 5,000 employees. It has been a dividend machine and as a matter of fact it has also provided covered call income potential. Let us deconstruct MCHP using the four measurements I described above.

EPS: Using the most recent quarter's earnings are $.577 per share

Dividend to be paid on December 2 $.344 per share

Dividend growth rate has been 3.5% per year and this year if you own the shares by November 15 you will receive the quarterly dividend of $3.44 plus if you continue to own it on December 12, you will receive an additional dividend of $.345. So nice to see a company share the good times with it's owners.  Based on last Friday's closing price of $33.55 the dividend yield is 4.1%.

D/E ratio. This company has debt to equity ratio of .21 well below the industry average of .89.

A little well defined research does not take that much time. Learn about one company a week from me and use it as a model to help you find a company that is a dividend machine and add it to your income producing portfolio.

Young people are wise to adopt the technique early. Steady growth with reinvested dividends will set you up to create an income stream when you are done working.

More on how this company is good study on using covered calls to create additional income later this week.

Very Truly Yours,