Texas Instruments (TXN) announces 13.3% dividend hike

Chipmaker Texas Instruments (TXN) or “TI” has announced its decision to raise the quarterly dividend by 4 cents to 34 cents per share. This translates into a 13.3% increase from the prior dividend.

The increased dividend will be paid on Nov 17, 2014, to stockholders of record as of Oct 31, 2014. Prior to this announcement, Texas Instruments had been paying a quarterly dividend of 30 cents per share.

The strength of TI’s business model is reflected in its strong cash generation capabilities and commitment to return value to shareholders. We believe that continued increase in dividends will inspire investors’ loyalty through higher returns from the stock.

TI’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, share repurchases and strategic acquisitions. During the second quarter, it spent $775 million on share repurchases and $323 million on cash dividends.

Cash and cash equivalents were $2.80 billion at quarter-end. TI exited the quarter with $4.39 billion in long-term debt and $254 million in short-term debt. The debt to total capital ratio was 30.8%. We remain encouraged by TI’s strong cash position and its ability to service its long-term debts.

Texas Instruments is one of the largest suppliers of analog and digital signal processing integrated circuits. The company’s second-quarter earnings were up sequentially and above our expectations. However, revenues of $3.29 billion were down 10.4% sequentially but up 8% year over year (slightly better than the guidance of $3.27 billion at the mid-point).

Nevertheless, TI’s compelling product line-up, the increasing differentiation in its business and lower-cost 300-mm capacity should drive earnings over the long term. The increase in dividend indicates that the company is confident about its steady cash flows.

Currently, Texas Instruments has a Zacks Rank #3 (Hold). Other better-ranked stocks that are performing well at current levels include Mercadolibre, Inc. (MELI) and World Energy Solutions, Inc. (XWES), sporting a Zacks Rank #1 (Strong Buy), and Callidus Software (CALD) carrying a Zacks Rank #2 (Buy).
 
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