We recently compiled a list of the 12 Best Dividend Stocks For Steady Growth. In this article, we are going to take a look at where Texas Instruments Incorporated (NASDAQ:TXN) stands against the other dividend stocks.
It’s well understood how crucial dividend growth stocks are for investors. Although dividend stocks have been moving at a slow pace recently, largely due to the AI stock boom, their long-term value remains undeniable. Investors appear to be increasingly drawn to dividend growth strategies, recognizing that the focus should now be on growth rather than just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, offering an average yield of about 2.4%, trading at roughly 23 times earnings, and projected to achieve an average annual earnings growth of 7% over the coming years.
Also read: 10 Best Dividend Aristocrats According to Wall Street Analysts
During the second quarter, US equity markets saw gains, driven by ongoing excitement around artificial intelligence technology, which led to a notable rise in growth stocks. Analysts believe that dividend-paying equities, supported by strong fundamentals, sustainable growth prospects, and solid balance sheets, are well-positioned to benefit from continued economic growth. The current market environment has somehow blurred the line between tech and dividend stocks, especially as major tech companies have introduced dividend policies this year. Whether these companies can continue to raise their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, US companies increased their cash reserves to a record $4.11 trillion, aided by a resilient economy and relatively high interest rates, which has accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or initiated a dividend during the first half of 2024.
Another factor boosting the significance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi from SS&C ALPS Advisors considers this a prudent strategy, as he expects that the Fed will begin easing rates. The chief ETF strategist made the following comments while speaking at CNBC’s “ETF Edge”:
“Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.”
He further said:
“You’re looking for dividends as part of the methodology, but you’re looking at dividends that are durable, dividends that have been growing, that are well supported by fundamentals.”
Various reports have indicated that while dividend growth companies may not deliver immediate rewards, they offer substantial long-term benefits. Nuveen, a financial planning firm based in Illinois, provided an optimistic outlook on dividend growth strategies this year, emphasizing their historical performance. The report suggested that companies focused on dividend growth possess valuable long-term characteristics and are well-positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or initiate dividends have achieved higher annualized returns with lower volatility compared to other equity market segments. Although dividend growth companies may not outperform in every market environment, their robust risk-adjusted returns over extended periods make them an ideal foundation for any equity portfolio. With that, we will take a look at some of the best dividend stocks for steady dividend growth.
Our Methodology:
For this list, we screened for dividend stocks with a 5-year average dividend growth rate of above 10%. From that list, we picked stocks with dividend growth track record of at least 10 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A robotic arm in the process of assembling a complex circuit board – showing the industrial scale the company operates at.
Texas Instruments Incorporated (NASDAQ:TXN)
5-Year Average Dividend Growth: 11.04%
Consecutive Years of Dividend Growth: 12
Texas Instruments Incorporated (NASDAQ:TXN) is an American multinational semiconductor company that produces analog and embedded chips. The analog chip industry is experiencing one of its most severe downturns ever, and the company is struggling to navigate this challenging period. The company had initially set a long-term spending plan to increase its capital expenditures to around $5 billion annually over four years, a decision made when demand for industrial and automotive chips was surging in 2022 due to shortages. However, the current situation is quite different, leading to the company’s negative trailing twelve-month levered free cash flow of $789 million.
Despite this, Texas Instruments Incorporated (NASDAQ:TXN) is actively working to overcome the obstacles it faces. Over the past year, it has allocated $3.7 billion to research and development (R&D) and selling, general, and administrative expenses (SG&A), invested $5.0 billion in capital expenditures, and returned $4.9 billion to shareholders. The company has also revised its projections for free cash flow per share in various recovery scenarios for 2026, estimating a range between $8 and $12. The company’s strong history of cash flow and dividend growth continues to position it as a solid long-term investment. TXN has surged by over 24% since the start of 2024.
The London Company also highlighted the company’s recovery in its Q2 2024 investor letter. Here is what the firm has to say about Texas Instruments Incorporated (NASDAQ:TXN):
“Texas Instruments Incorporated (NASDAQ:TXN) – TXN rallied in 2Q despite declining revenue in its latest update. TXN is beginning to see some encouraging signs of destocking nearing an end and some sub segments of the market are experiencing improving demand. TXN continued to spend on capex and should begin to see positive benefits to cash flow next year from the CHIPS Act.”
In the past five years, Texas Instruments Incorporated (NASDAQ:TXN) has raised its dividends at an annual average rate of 11.04%. The company has overall raised its payouts for 12 consecutive years, which makes TXN one of the best dividend stocks for steady growth. It currently pays a quarterly dividend of $1.30 per share and has a dividend yield of 2.47%, as of August 23.
At the end of Q2 2024, 50 hedge funds tracked by Insider Monkey held stakes in Texas Instruments Incorporated (NASDAQ:TXN), up from 49 in the previous quarter. These stakes have a collective value of over $2.7 billion. With more than 4.2 million shares, First Eagle Investment Management was the company’s leading stakeholder in Q2.
Overall TXN ranks 12th on our list of the best dividend stocks for steady growth. While we acknowledge the potential of TXN as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than TXN but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
