Texas Instruments' (NASDAQ:TXN) Shareholders Will Receive A Bigger Dividend Than Last Year

Texas Instruments Incorporated (NASDAQ:TXN) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of November to $1.24. This takes the dividend yield to 3.0%, which shareholders will be pleased with.

Check out our latest analysis for Texas Instruments

Texas Instruments' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Texas Instruments was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 77% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 2.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

Texas Instruments Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.68 in 2012 to the most recent total annual payment of $4.96. This means that it has been growing its distributions at 22% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Texas Instruments has seen EPS rising for the last five years, at 18% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Texas Instruments' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. However, lack of cash flows makes us wary of the potential for cuts in the dividend's future, even though the dividend is generally looking okay. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Texas Instruments you should be aware of, and 2 of them are concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.