Texas Ups Buyback, Hikes Dividend

Chipmaker Texas Instruments ( TXN - Analyst Report ) or "TI" has authorized the repurchase of additional shares worth $5 billion of the company’s common stock, bringing the total outstanding authorization to $8.4 billion.

Additionally, the company also announced its decision to raise the quarterly dividend by 7 cents to 28 cents per share. This translates into a 33% increase from the prior dividend. The increased dividend will be paid on May 20, 2013, to stockholders of record as of Apr 30, 2013. Prior to this announcement, Texas Instruments had been paying a quarterly dividend of 21 cents per share.

The strength of TI’s business model is reflected in the company’s strong cash generation capabilities and its commitment to returning value to shareholders. We believe that the continued share buybacks and dividend hike will increase investor enthusiasm for the shares.

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 $600 million on share repurchases and $235 million on cash dividends. Cash and cash equivalents were $3.97 billion at quarter-end, up $0.31 billion during the quarter. The debt to total capital ratio was just 27.6%. 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 (DSP) integrated circuits. The company’s fourth quarter earnings surpassed our expectations but were down sequentially as well as from the year-ago quarter due to softening demand and weak macro conditions.

However, TI’s compelling product lineup, 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 have been performing well and are worth looking at include Interdigital Inc. ( IDCC - Snapshot Report ) , Autodesk Inc. ( ADSK - Analyst Report ) and Netflix Inc. ( NFLX - Analyst Report ) , all carrying a Zacks Rank #2 (Buy).