Last update on 2024-06-27

Texas Instruments (TXN) - Dividend Analysis (Final Score: 7/8)

Discover Texas Instruments (TXN) dividend analysis with an impressive 7/8 score. Explore the evaluation of TXN's performance, stability, and long-term commitment to dividends.

Short Analysis - Dividend Score: 7

We're running Texas Instruments (TXN) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield

The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. Texas Instruments' current dividend yield of 2.945% is significantly higher than the industry average of 0.65%. This implies that Texas Instruments is more attractive to income-focused investors. When evaluating dividend yield over the past 20 years, two major peaks are evident: in 2023 at 2.945% and in 2012 at 3.0107%. For the most part, Texas Instruments' dividend yield has remained substantially higher than the industry average. For instance, even during the 2008 financial crisis, Texas Instruments' dividend yield was 2.6418%, higher than the industry's 1.16%. This trend can be seen as a strong indication of the company's commitment to returning value to its shareholders. A noteworthy observation is that while the company's stock price has significantly appreciated over the years—from $29.38 in 2003 to $170.46 in 2023—its dividend per share has also increased from $0.086 in 2003 to $5.02 in 2023. The rising trend in dividend yield underscores the company's financial resilience and its focus on shareholder return, which should be seen positively. Nevertheless, investors should also consider other factors such as payout ratio and earnings growth, which contribute to the sustainability of the dividends.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for Texas Instruments (TXN) and why it is important to consider

The criterion examines whether the Dividend Growth Rate (DGR) of Texas Instruments (TXN) exceeds 5% over the past 20 years. A steady and high DGR indicates that the company has a strong financial foundation and consistently generates robust cash flows, allowing it to share profits with shareholders. It assesses the company's commitment to rewarding its investors and the sustainability of its dividend policy.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the percentage of earnings paid to shareholders in dividends. A lower payout ratio is generally a sign of a sustainable dividend.

The average payout ratio for Texas Instruments over the last 20 years is approximately 38.97%, which is well below the 65% threshold. This indicates a healthy and sustainable dividend policy. Only in 2023 did the payout ratio exceed 65%, but this is not enough to affect the long-term average significantly. Overall, the trend is positive for investors seeking secure and sustainable dividends.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

From 2003 to 2023, Texas Instruments' earnings per share (EPS) have shown significant growth, increasing from $0.68 in 2003 to $7.1696 in 2023. Correspondingly, the dividend per share has also increased from $0.086 to $5.02 in the same period. A critical measure to assess the sustainability of dividends is the ratio of dividends covered by earnings, evident from the provided percentages. Generally, a ratio above 1 indicates good coverage; however, ratios closer to 0.5 align with a balanced approach where dividends are half the earnings. Over the years, we see fluctuations in this coverage ratio, with it starting at 0.126 (2003), going as high as 0.700 (2023), and hitting several peaks and troughs. Notable peaks in EPS coverage, such as in 2006 (4.671), suggest strong earning years, whereas troughs indicate more tempered growth. The general trend shows improving coverage, suggesting a healthy balance between rewarding shareholders and retaining earnings for growth. This trend is positive, signaling prudent financial management until 2023.

Dividends Well Covered by Cash Flow?

Analyzing if Texas Instruments' dividends are well-covered by free cash flow is crucial because it reflects the company's ability to sustain and potentially grow its dividend payouts without resorting to debt or dipping into cash reserves.

The ratio of free cash flow to dividend payout, also known as the dividend coverage ratio, indicates how many times the company's free cash flow can cover its dividend payments. Over the years, we see a substantial improvement in the ratio, starting from as low as 0.07 in 2005 to an impressive 3.38 in 2023. A ratio above 1 generally suggests that the company has ample cash flow to cover its dividends, and Texas Instruments has maintained a ratio above 1 since 2008, indicating that its dividends are well-covered by its cash flow. This trend is positive, implying a lower risk of dividend cuts and potential scope for future dividend increases, reflecting robust financial health and effective cash flow management.

Stable Dividends Since the Company Began Paying Dividends?

The stability of dividends over a long period is crucial for income-seeking investors as it reflects the financial health and reliability of the company in providing consistent returns. A drop of more than 20% could indicate potential risks or volatility, which might not be ideal for those relying on dividend income.

The analysis of Texas Instruments' dividend payouts over the past 20 years shows a strong upward trend. The dividend per share has grown from $0.086 in 2003 to $5.02 in 2023, which showcases a remarkable increase. This translates to an approximate 5730% increase over two decades. However, there has been a year where the dividend payout dropped by more than 20%. This kind of drop is a red flag for income investors looking for stable and reliable dividend income. The drop must be considered in the broader context of the company's overall financial performance and the economic conditions at that time. Nevertheless, except for the drop, the longitudinal growth trend is commendable and signals strong financial performance.

Dividends Paid for Over 25 Years?

One important criterion in evaluating the robustness of a company's dividend program is whether dividends have been paid consistently for over 25 years. This metric signals the company's financial stability and long-term commitment to returning value to its shareholders.

Based on the data, Texas Instruments (TXN) has shown a consistent trend of paying dividends for over 25 years. From 1998 to 2023, not only has the company maintained its dividend payments, but the dividend per share has also increased from $0.0638 in 1998 to $5.02 in 2023. This represents a substantial growth rate in dividends, indicating that TXN is not only committed to providing returns to shareholders but is also doing so increasingly. Such a long history of consistent dividend payments is indicative of strong financial health and management's confidence in the company's future earnings. This trend is excellent as it shows a reliable income stream for investors and strengthens investor confidence.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

The data reveals that Texas Instruments (TXN) has consistently repurchased its stock over the past 20 years, with notable stock reduction from 1,761,764,706 shares in 2003 to 908,000,000 shares in 2023. This consistent trend indicates a solid commitment by the company to return value to its shareholders. Given that the average share repurchase rate is -3.2296% per year, this suggests an overall reduction in the volume of shares available in the market, which is typically favorable for existing shareholders as it can lead to higher earnings per share (EPS) and potentially higher share prices. Thus, this trend is positive for the company’s long-term shareholder value.