Slide Show

6 of 11

Practical Advice from

10 Dividend Growth Stocks That Simply Print Money

Texas Instruments

Symbol: TXN

Dividend yield: 2.7%

FCF margin: 29.5%

5-year annual dividend growth: 24%

Texas Instruments Incorporated is the world’s largest maker of analog chips, which allow electronics to measure real world conditions such as temperature, pressure and volume, and convert it into digital signals understood by computers.

Texas Instrument’s amazing FCF margin is courtesy of a truly sweet spot in its high-fragmented industry. The company’s strong IP and reputation for reliability give it strong pricing power. However, because analog chips are an integral component in most electronics, but also not that expensive in the first place, manufacturers don’t have much incentive to go with lower-priced, but less advanced competitors.

This allows TI to prolong the lifecycle of its chips, meaning it can amortize the cost of R&D over a longer time period, and boost margins. Since TXN has in recent years been able to buy worldwide manufacturing equipment from bankrupt rivals for pennies on the dollar, Texas Instruments has been able to generate margins and returns on capital that are 50% to 100% better than its rivals.

Those rich margins create strong cash flows. Management, in turn, aggressively returns cash to shareholders in the form of buybacks and dividends. But thanks to a low FCF payout ratio of 39.6%, TXN boasts a rock-solid dividend that is likely to continue growing at 10% for the next decade, generating impressive total returns of about 12% to 13%.

SEE ALSO FROM KIPLINGER: 10 Great All-Weather Stocks

View as One Page


AddThis Sharing Sidebar
More AddThis Share options