Back to top

Image: Bigstock

Why Texas Instruments (TXN) is a Great Dividend Stock Right Now

Read MoreHide Full Article

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Texas Instruments in Focus

Headquartered in Dallas, Texas Instruments (TXN - Free Report) is a Computer and Technology stock that has seen a price change of 15.55% so far this year. Currently paying a dividend of $1.02 per share, the company has a dividend yield of 2.15%. In comparison, the Semiconductor - General industry's yield is 0.44%, while the S&P 500's yield is 1.37%.

In terms of dividend growth, the company's current annualized dividend of $4.08 is up 9.7% from last year. In the past five-year period, Texas Instruments has increased its dividend 5 times on a year-over-year basis for an average annual increase of 21%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Texas Instruments's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for TXN for this fiscal year. The Zacks Consensus Estimate for 2021 is $7.86 per share, which represents a year-over-year growth rate of 31.66%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that TXN is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Texas Instruments Incorporated (TXN) - free report >>

Published in