We recently compiled a list of the 15 Best Stocks For Dividends. In this article, we are going to take a look at where Texas Instruments Incorporated (NASDAQ:TXN) stands against the other dividend stocks.
In 2023, dividend stocks underperformed compared to the overall market, which was driven largely by tech stocks. As we move into the latter half of 2024, dividend stocks have shown a similar performance trend in the first half of the year. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, is down by 0.17% year-to-date, compared with a nearly 18% gain in the broader market. Dividend stocks are declining for two main reasons. First, high interest rates are drawing investors towards bonds instead. Second, the current surge in AI technology is capturing investors’ focus on tech stocks. The tech-heavy NASDAQ has achieved its all-time high this year, surging by over 25% so far in 2024. That said, investors haven’t completely lost faith in dividend stocks. When all is said and done, successful investing is about playing the long game. Dividend stocks have consistently delivered, accounting for 36% of the market’s total return since 1927. Bank of America has also declared 2024 as ‘the year of dividends’.
In dividend investing, dividend growth stocks often take a lead over high-yield dividend stocks. Recent research indicates that companies providing consistent and sustainable dividends, without excessive payouts, have delivered the best long-term returns. Wellington Management conducted a study that categorized dividend-paying companies into five groups based on their payout levels. Since 1930, the research found that stocks with the highest dividend payouts generally performed similarly to those with high, but not the very highest, payouts, although they frequently traded places as the top performers over the decades.
Also read: 10 Very High Yield Dividend Stocks With Upside Potential
The dividend growth strategy has become so prominent over the years that many companies in the US are steadily increasing their payouts. In 2023, dividend payments reached an all-time high and have consistently increased over the years. Analysts are very optimistic about dividend payments for 2024, and recent projections indicate that the companies are on course to meet this new target record. One of the key reasons for this growth is that many companies, especially large technology firms, have abundant cash reserves and are rapidly increasing their free cash flows. This strong financial position enables them to continue rewarding their investors with higher dividend payments. According to the latest report by S&P Dow Jones Indices, companies in the index paid $153.4 billion in dividends in the second quarter of 2024, up from $151.6 billion from the previous quarter and up from $143.2 billion in the same period last year. The report also mentioned that there were 539 reported dividend increases, compared to 460 in the prior-year period, marking a 17.2% year-over-year rise. The total amount of these dividend increases reached $20.4 billion for the quarter, up from $9.8 billion in Q2 2023.
Dividend growth stocks are a hit with investors because they have rock-solid businesses, a steady cash flow, and strong balance sheets. These companies are top-notch for generating passive income. In this article, we will take a look at some of the best dividend stocks to buy.
Our Methodology:
To compile this list, we thoroughly reviewed reputable sources such as Forbes, Morningstar, Barron’s, and Business Insider. From their latest articles, we gathered the stocks they collectively favored. Additionally, we assessed the sentiment of hedge funds for each stock using Insider Monkey’s Q1 2024 database. The stocks are arranged in ascending order based on the number of hedge funds that hold stakes in these companies. 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)
Number of Hedge Fund Holders: 49
An American multinational semiconductor company, Texas Instruments Incorporated (NASDAQ:TXN) ranks thirteenth on our list of the best stocks for dividends. The semiconductor industry is cyclical, and apart from the high-powered AI chip sector, it has been in a downturn for the past year or more. In addition, the semiconductor inventory decreased somewhat in Q1 2024 but remains at or near 20-year highs for industrial, automotive, consumer, and communication components. Street analysts are of the view that these market conditions will pose a short-term challenge for the company. Over the long term, it is viewed as a solid business that is worth investing in. Since the beginning of 2024, the stock has surged by nearly 20% and gained 10.5% in the past year.
Due to ongoing challenges in the semiconductor industry, Texas Instruments Incorporated (NASDAQ:TXN) reported a 16% YoY decline in revenues at $3.66 billion in the first quarter of 2024. However, it still managed to beat analysts’ expectations by $50 million. The company reported declines in operating operating profits in two of its three segments. The management has indicated that it is strategically investing in manufacturing capacity to tackle these challenges, aiming to establish a strong foundation for future recovery and growth. This commitment is reflected in the company’s notable increase in capital expenditures. Over the past 12 months, the company has invested $3.7 billion in R&D and $5.3 billion in capital expenditures.
These moves did have an impact on Texas Instruments Incorporated (NASDAQ:TXN)’s cash flow generation. In Q1 2024, the company generated $6.3 billion in operating cash flow and its free cash flow for the period came in at $940 million. The free cash flow represented just 5.6% of its revenue. The company also remained committed to its shareholder return, distributing $4.6 billion to investors through dividends, up from $4.3 billion in the prior-year period.
Texas Instruments Incorporated (NASDAQ:TXN)’s cash flow generation and shareholder return make it one of the best stocks for dividends. In addition, the company has been growing its dividends for the past 12 years. It currently offers a quarterly dividend of $1.30 per share and has a dividend yield of 2.56%, as of July 15.
At the end of Q1 2024, 49 hedge funds in Insider Monkey’s database owned stakes in Texas Instruments Incorporated (NASDAQ:TXN), down from 55 in the preceding quarter. These stakes are valued at over $2.4 billion. With more than 4.2 million shares, First Eagle Investment Management was the company’s leading stakeholder in Q1.
Overall TXN ranks 13th on our list of the best dividend stocks to buy. You can visit 15 Best Stocks For Dividends to see the other dividend stocks that are on hedge funds’ radar. 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.
