Broadcom Corporation (NASDAQ:BRCM) may find a lot of success overseas, but I’d say its smartphone market share is only set to tumble in the United States.
It also doesn’t hurt that NVIDIA Corporation (NASDAQ:NVDA) is taking a stand at entering the handheld-gaming market with Project Shield, which is soon set to launch. The portable device will combine NVIDIA’s processing and graphics technology into one unit, giving the company better control over its inventory and production than ever before.
Show me the money, NVIDIA
The real reason NVIDIA excites me and should excite income investors is that it’s finally begun paying back its shareholders. The company has been well capitalized for a while, ending its most recent quarter with $3.69 billion in cash, or $6.38 per share. This leaves plenty of cash available for management to reinvest in R&D, to potentially make acquisitions as it sees fit, and certainly to reward shareholders for sticking with the company as it transitions from a pure graphics producer to an integrated processing company.
Earlier this year, NVIDIA stated its intention of returning money to shareholders via share repurchases. NVIDIA struck a deal with Goldman Sachs Group Inc (NYSE:GS) last month for the accelerated repurchase of $750 million worth of its own shares and plans to repurchase up to $1 billion worth of its shares this year alone. While not a direct payment into shareholders’ pockets, share buybacks do reduce the number of shares outstanding and can make a company appear cheaper on a P/E basis.
The big moneymaker here is the dividend that NVIDIA initiated in November. It might seem a bit tame at $0.075 per quarter, or $0.30 annually, but at a current yield of 2.1% you’re doing pretty well compared with the majority of tech-sector payouts. NVIDIA’s payout ratio is also just 37% of next year’s projected EPS. Considering that NVIDIA has topped Wall Street’s EPS estimates by double digits in each of the past four quarters, I can only presume this EPS figure will head higher and its payout ratio lower, giving it ample justification to boost its dividend.
Foolish roundup
It might be difficult for some longtime followers of NVIDIA to look past the fact that this is no longer just a graphics company, but the next few years should be telltale for NVIDIA as to whether its Tegra 4i chips take hold. If sales of its Tegra 3 are any indication of how it will do, given that it entered the smartphone market completely green around the collar, then the Tegra 4i will probably be off to the races. With a balance sheet swimming in cash, a history of topping Wall Street’s EPS expectations, and a flurry of new value-building initiatives for shareholders, NVIDIA has all the makings of a set-it-and-forget-it income play.
The article 1 Great Dividend You Can Buy Right Now originally appeared on Fool.com is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Apple, Intel, Microsoft, Qualcomm, and TriQuint Semiconductor. It also recommends Apple, Goldman Sachs, Intel, and NVIDIA.
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