3 Semiconductor Stocks for Growth and Dividends

Investors looking for growth potential have many market sectors to sort through. Some sectors thrive when economic conditions are tougher, such as consumer staples or utilities. Others thrive when economic growth is strong, such as consumer discretionary or technology. Within that latter group, the semiconductor stocks offer tremendous growth potential given that usage of chips in all sorts of products such as phones, TVs, laptops, and much more continues to rise globally. The sector offers a huge potential growth runway, meaning the constituents all have the ability to grow meaningfully whether they take market share or not. Here, we'll take a look at three semiconductor stocks that we believe have strong long-term growth potential, in addition to offering market-beating yields. Qualcomm Inc. Qualcomm is a company that has helped shape the semiconductor industry since its founding in 1985. The company generates about $42 billion in annual revenue, and trades today with a market cap of $189 billion, making it a sizable company in what is a dispersed industry with a lot of competition. The company operates through three segments, and through those segments, it provides various products to the wireless industry. Qualcomm makes integrated circuits and software based on 5G wireless technology, focused on voice and data communications, networking, and global position systems. The company also licenses its technology to other companies. Qualcomm has managed to boost its dividend for 19 consecutive years, which puts it in rarified company for a technology outfit, particularly one that is focused on semiconductors. The sector tends to see appreciable earnings volatility, which means dividend streaks are all the more difficult, but Qualcomm has stood the test of time. Even with that impressive streak, Qualcomm has a payout ratio of just 25% for this year, meaning it not only has a high level of dividend safety, but a long runway for future increases as well. We see earnings growth of 7% annually in the years to come as Qualcomm continues to take advantage of its competitive positioning in the wireless sector in particular. The company has been able to boost its dividend by more than 11% annually in the past decade, and we don't rule out that level of increases in the years to come. Qualcomm has a high desirable combination of a very low payout ratio and strong earnings growth potential. Qualcomm's 1.6% dividend yield also puts it ahead of the broader market, so in concert with its earnings growth and dividend growth potential, it looks quite attractive. Intel Corp. Intel designs, manufactures, and distributes computer products worldwide. Intel was founded in 1968, generates about $76 billion in annual revenue, and trades with a $183 billion market cap. The company offers central processing units for laptops, chips, connectivity products, memory and storage products, and more. Intel made a sizable purchase fairly recently in buying Mobileye back in 2017 for more than $15 billion, as it is remaking itself geared towards more growth potential. Intel's leverage to the PC market caused somewhat lower growth in recent years, but its efforts to boost growth potential are starting to bear fruit. Intel's dividend streak stands at eight years, as the company skipped a year following the financial crisis in raising its payout. Importantly, Intel didn't cut its dividend; it just failed to raise it. At the time, the company was struggling to grow and was highly leveraged, so management focused on reducing that leverage rather than boosting the dividend. We believe that was the correct decision for the long-term health of the company. The payout ratio is 39% for this year, so like Qualcomm, Intel's dividend safety should be quite outstanding, even in the face of a recession. We see 5% earnings growth annually in the years ahead, which would be due to the company's legacy segments -- such as memory and storage -- somewhat offsetting higher growth areas such as Mobileye. That should provide enough cash to see many years of dividend increases ahead, in line with the company's 5% average increase in the past decade. Intel offers a very strong 3.2% dividend yield at today's price, quite high in absolute terms, but very high when considering Intel is a technology stock. Texas Instruments Texas Instruments one of the oldest companies in the technology sector, having been founded in 1930. The company generates about $20 billion in annual revenue, and following months of weakness in the share price, trades for a market cap of $153 billion. Texas Instruments designs, manufactures, and sells semiconductors to a wide variety of customers globally. If offers battery management solutions, switching regulators, converters, power switches, as well as various other semiconductor products. Texas Instruments sports an 18-year dividend increase streak, which again is quite long for a technology company, as they tend to focus spending more on growth than dividends. Even so, the company's payout ratio is 50% for this year. The payout ratio was much lower in years past, but Texas Instruments has averaged 20% dividend increases in the past decade, an extremely impressive growth rate. We don't expect that sort of growth to be sustainable, but it verifies management's commitment to Texas Instruments being a strong income stock. We see 7.5% average earnings-per-share growth in the years to come, providing the company the ability to raise the dividend by the same rate without undue stress on the payout ratio. In addition, the yield of 2.8% is more than double that of the S&P 500, so Texas Instruments is a true income stock with growth potential. Final Thoughts While investors may not think of semiconductors as a place to go for strong income stocks, the three examples provided here -- Qualcomm, Intel, and Texas Instruments -- offer reasonable payout ratios, good yields ahead of the market, and strong growth potential for both earnings and their dividends. We see the semiconductor industry as providing investors with a years-long growth runway, and all three companies offer different exposures to that trend. All, despite their varying approaches, offer robust dividend increase streaks and plenty of runway for more increases in the years to come.

3 Semiconductor Stocks for Growth and Dividends

These chipmakers offer long-term growth potential and market-beating yields.

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