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Attention dividend hunters! Texas Instruments Incorporated (NASDAQ:TXN) will be distributing its dividend of US$0.77 per share on the 20 May 2019, and will start trading ex-dividend in 2 days time on the 03 May 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Texas Instruments’s latest financial data to analyse its dividend characteristics.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Texas Instruments pass our checks?
Texas Instruments has a trailing twelve-month payout ratio of 49%, which means that the dividend is covered by earnings. Going forward, analysts expect TXN’s payout to increase to 57% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.8%. However, EPS is forecasted to fall to $5.34 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. TXN has increased its DPS from $0.44 to $3.08 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Texas Instruments has a yield of 2.6%, which is high for Semiconductor stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Texas Instruments as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three fundamental factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for TXN’s future growth? Take a look at our free research report of analyst consensus for TXN’s outlook.
- Valuation: What is TXN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TXN is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.