Texas Instruments (TXN) continued its long string of dividend increases with a 24% boost to $0.21 per share per quarter for an indicated annual dividend of $0.84 per share. Since 2003-04 when the dividend was $0.09 per share, TXN has increased its payout to shareholders a whopping ninefold, which is in stark contrast to the stock price, which has remained trapped in a markedly sideways trading range over the same time period.
The dividend increase brings its yield close to that of another darling from the halcyon days of tech, Microsoft (MSFT), although both yields significantly trail Intel's (INTC), which is 3.90%. We don't follow MSFT because they don't meet our Criteria for Select Blue Chips, but Intel will enter our pages at the end of 2012 as the company obtains 25 years of uninterrupted dividends.
I'm not sure why investors are enamored with chip stocks as the semiconductors are notoriously volatile. Nonetheless, investors are still flocking to the group and, with yields becoming ever more attractive, there seems to be a willingness to hold the shares despite weak global fundamentals.
The historically repetitive area of Undervalue dividend yield for TXN is 2.60%, which based on the newly enhanced dividend of $0.84 is realized at $32.30 per share. Currently trading around $28.50 per share, the stock is roughly $4 or 13% below its historically repetitive area of good value.
The historically repetitive area of Overvalue dividend yield for TXN is 0.80%, which based on the newly enhanced dividend, equates to a stock price of $95.24 per share. By our measure of value identification, TXN's upside potential greatly outweighs the downside risk, especially considering the company's long-term track record for substantive annual dividend increases.
