Inflation is sometimes called a “hidden tax”. One way to help offset the stock dividends – preferably, dividends that could grow at a higher rate than inflation for years to come.
However, telecommunications stocks are debt-laden and low-growth. Today, the semiconductor sector is one of the technological areas that can provide high dividends and growth. While this sector is known to be cyclical, investors who have bought and held semiconductor stocks over the past decade have, on average, done quite well.
The recent stock-market swoon has hammered many chip stocks; however, in the long run, demand for their products is set to grow. With high yields and cheap valuations, these three yield plays look particularly attractive today.
1. Broadcom
Not only is chipmaker Broadcom (AVGO 2.03%) diversified in terms of the type of chip it makes, but the company has also been diversifying into software, which has more consistent revenue and cash flow. In fact, Broadcom recently announced a huge $ 61 billion cash-and-stock acquisition of software giant VMware (VMW 1. Read also : Texas Politics Poll: Abbott leads the race against Beto by 6 points.59%), a specialist in network virtualization and multicloud computing. The new acquisition will actually bring Broadcom’s software business to nearly 50% of pro forma revenue, so if the deal goes through, Broadcom can’t actually be considered pure semiconductor stock anymore.
Fortunately, Broadcom’s semiconductor business is now very-margin and making money. Last quarter, revenue increased 23%, with 29% growth in the semiconductor portfolio and 5% growth in the software portfolio, while free cash flow increased 20.8% to $ 4.16 billion. The free cash flow was sufficient to cover the company’s 3.4% dividend more than twice as much.
Some can worry about Broadcom taking a big acquisition. However, the company has built itself into a favorable situation now by way of acquisitions. CEO Hock Tan has a private-equity mentality, acquiring category leaders, and then cutting costs as Broadcom folds each business into its large-scale corporate structure. The Broadcom chip is currently testing a large number of applications, including data center networks, enterprise storage controllers, and automated and industrial applications, which are now showing strength even in a tougher economy.
Trading at just 12.5 times the forward earnings estimate, while also diversifying its portfolio further into software, Broadcom looks like a high-yield defense game to get through a tough year.
2. Texas Instruments
Another defensive chip stock sporting a high 3% yield is Texas Instruments (TXN 1.70%). The largest player in the field of analog and embedded chips, Texas Instruments has survived and thrived since the 1930s thanks to its laser-like focus on capital allocation and free cash flow per share. The relentless focus is on whether IT enjoys large operating margins that exceed 50% of current revenue, allowing it to invest in expansion while also rewarding shareholders with dividends and stock repurchases.
While consumer electronics will certainly reduce sales in the near future, Texas Instruments has already placed itself at the top of the chip market: automotive and industrial chips. In fact, some of the chip shortage issues are now likely to be traced back to Texas Instruments. See the article : Florida Health Care Provider Urges Judge to Block State Abortion Ban. However, demand exceeds supply is an issue many want to have now, and Texas Instruments has new fabrication factories coming online in the second half of 2022 and another in the first half of 2023. That should allow revenue to grow above last quarter. growth rate of 14%.
Although management expects the new quarter to fall in a row, it’s mostly because of pandemic lockdowns in China. When new capacity increases in the years ahead, growth must resume. Texas Instruments has raised its dividend at an annual rate of 25% from since 2004 – including a 13% increase late last year – so I expect a double -digit increase again by the end of 2022, despite macroeconomic issues.
3. Seagate Technology
As the creator of hard disk drives, Seagate won’t give up points for excitement. But what is attractive is the yield of 3.8% and the price-to-earnings (P / E) ratio of only 9. See the article : Texas Tribune Executive Director Evan Smith discusses El Paso politics.3. Although hard disk technology is obviously losing some market share to newer NAND flash storage technologies, it remains the cheapest format for non-volatile bulk storage. This is especially true in cloud data centers, where cloud infrastructure players have purchased large amounts of hard disks to store ever-increasing amounts of data. For Seagate, the number of exabytes of “mass capacity” rose 20% last quarter, and drive “mass capacity” now becomes 73% of Seagate revenue.
Although Seagate’s revenue won’t grow as fast as some other chip companies, it has been consistent and profitable in recent years, allowing the company to pay consistent dividends and buy back many shares. That’s probably because Seagate operates in a true oligopoly in hard disk manufacturing, with only two major players that supply to the entire world. Even in a brutal decline in 2019, Seagate revenue fell less than 7%, and operating income only fell 9%, before resuming growth.
Seagate’s rock-bottom P / E ratio indicates the company is declining more severely than that. However, if you assume that the cloud will grow in the long run, more data needs to be stored and analyzed, and that hard disks will have their place in the bulk storage segment, Seagate looks like a smart dividend game. at an uncertain time.
Billy Duberstein held positions at Broadcom and Texas Instruments. Clients can have shares of the company mentioned. Motley Fool got the position and recommended Texas Instruments. Motley Fool recommends Broadcom and VMware. The Motley Fool has a disclosure policy.
Billy Duberstein held positions at Broadcom and Texas Instruments. Clients can have shares of the company mentioned. Motley Fool got the position and recommended Texas Instruments. Motley Fool recommends Broadcom and VMware. The Motley Fool has a disclosure policy.
