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

The board of Texas Instruments Incorporated (NASDAQ:TXN) has announced that it will be paying its dividend of $1.24 on the 15th of November, an increased payment from last year's comparable dividend. This makes the dividend yield 3.1%, which is above the industry average.

Check out the opportunities and risks within the US Semiconductor industry.

Texas Instruments' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite comfortably covered by Texas Instruments' earnings, but it was a bit tighter on the cash flow front. 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.

The next year is set to see EPS grow by 1.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 58% by next year, which is in a pretty sustainable range.

Texas Instruments Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.68 in 2012 to the most recent total annual payment of $4.96. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. Texas Instruments has seen EPS rising for the last five years, at 18% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. 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. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Texas Instruments (of which 2 are a bit concerning!) you should know about. Is Texas Instruments not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.