Wednesday, December 13, 2017

Texas Instruments 3 year Dividend Growth 27.45%

I just love to go to a stock's website and be greeted with a statement that the company places significant emphasis on maintaining and increasing my income.   Texas Instruments, symbol TXN, is one of those companies.  I am going to add TXN today.

  • 4.7% Revenue Growth over past 3 years
  • 27.45% Dividend Growth over past 3 years
  • Low D/E (debt to equity ratio) of .28

"The ultimate measure for any enterprise is superior long-term growth
 of free cash flow."  Rich Templeton Chairman, President and CEO
- Rich Templeton, chairman, president and CEO



Texas Instrument Dividend History

I will start with the looking at Texas Instruments dividend history.  Look at the chart below and you will how TXN has stuck to its knitting and delivered on the promise of returning money to the investors.

Notice some important points in this chart.   The "dot com" crash occurred right at the time TXN started paying out dividends.    Yet, they were able to pay and increase.  

Then look at 2007 - 2009 when the entire market suffered a major disruption.  However, many stocks not only continued their dividends but increased their dividend twice.  For an income investor like me, I like that kind of history.

Texas Instrument Yield

Dividend increases are not the only metric I use when I pick a stock for a Dividend Machine portfolio.   I need a minimal yield and that is what TXN delivers, a minimal yield for me.  At 2.5% TXN, like my previous stock pick this week BBT, just beats the 10 year U.S. Treasury which is about 2.4% today.  However, I have run the numbers so many times and if you have a long horizon, dividend growth beats a high yielder.   Lets look at the facts.

On a theoretical basis you need a dividend growth rate of just about 16% for 6 years to obtain the same income you would have if you bought a stock with a 5.3% yield and dividend growth of 2.71% per year like At&t (T) delivers.   See the table below.

When I apply the same math to a comparison of At&t and TXN with a lower yield (2.5%) but a much higher dividend growth rate (27.45%) the results are stunning.  See the table below.


Texas Instrument all Dividend Machine Fundamentals 

The additional data I use when picking a Dividend Machine are displayed in the table below.  Earnings per share beat dividend paid out, revenue growth is solid and the D/E ratio of .28 as compared with industry standard of .33 makes for a solid company.

My Take

Two types of income investors read this blog.  Some need current yield.  They make valid arguments for this approach.  Other income investors concentrate on dividend growth.  They too make valid arguments as to why this is a better strategy. 

The decision to buy high yielders versus high growers has many moving parts, your age for instance as well as your personal cash flow cushion.

I like TXN because it does beat the 10 U.S. Treasury but is highly likely to double my income in just a few short years. 

M* MoneyMadam

Disclosure Long TXN