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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Texas Instruments in Focus
Texas Instruments (TXN) is headquartered in Dallas, and is in the Computer and Technology sector. The stock has seen a price change of 16.16% since the start of the year. The chipmaker is paying out a dividend of $1.02 per share at the moment, with a dividend yield of 2.14% compared to the Semiconductor - General industry's yield of 0.45% and the S&P 500's yield of 1.4%.
Looking at dividend growth, the company's current annualized dividend of $4.08 is up 9.7% from last year. Over the last 5 years, Texas Instruments has increased its dividend 5 times on a year-over-year basis for an average annual increase of 21%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Texas Instruments's payout ratio is 57%, which means it paid out 57% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TXN expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $7.86 per share, representing a year-over-year earnings growth rate of 31.66%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TXN is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Texas Instruments Incorporated (TXN) : Free Stock Analysis Report
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