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Chipmaker Texas Instruments (TXN - Analyst Report) or "TI" has announced its decision to raise the quarterly dividend by 2 cents to 30 cents per share. This translates into a 7% increase from the prior dividend.

This is the company’s second dividend hike this year. The increased dividend will be paid on Nov 18, 2013, to stockholders of record as of Oct 31, 2013. Prior to this announcement, Texas Instruments had been paying a quarterly dividend of 28 cents per share.

The strength of TI’s business model is reflected in the company’s strong cash generation capabilities and its commitment to return value to shareholders. We believe that continued increase in dividends will inspire investor loyalty through higher returns from the stock.

TI’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, share repurchases and strategic acquisitions. During the last-concluded quarter, it spent $721 million on share repurchases and $309 million on cash dividends.

Cash and cash equivalents were $3.24 billion at quarter-end. The debt to total capital ratio was 31.8%. We remain encouraged by TI’s strong cash position and its ability to service its long-term debts.

Texas Instruments is one of the largest suppliers of analog and digital signal processing integrated circuits. The company’s fourth-quarter earnings were up sequentially but below our expectations due to weak macro conditions.

However, TI’s compelling product line-up, the increasing differentiation in its business and lower-cost 300mm capacity should drive earnings in the longer term. The increase in dividend indicates that the company is confident about its steady cash flows.

Currently, Texas Instruments has a Zacks Rank #3 (Hold). Other stocks that are performing well at current levels include SanDisk (SNDK - Analyst Report), Micron Tech. (MU - Analyst Report) and Silicom Ltd. (SILC). All these stocks carry a Zacks Rank #1 (Strong Buy).

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