Texas Instruments (TXN): Strong Performance, but Trading at a Premium

PUBLISHED Apr 6, 2023, 1:55:35 AM        SHARE

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The semiconductor sector has had a crazy 2023. Texas Instruments is the leader of the pact and one of the best in the industry. The company is off to strong start in 2023. While the market is tanking, Texas Instruments is rising. In this economic environment, it is always great to look at strong dividend growth stocks to see if they are undervalued and a stock to buy despite the company’s strong start. It is time to run Texas Instruments through the Dividend Diplomats Dividend Stock Screener to determine if they are a stock to buy today!

Texas Instruments Results and Recent Performance

Texas Instruments released its fourth quarter earnings. Interestingly, when looking at the income statement, the Q4 results jumped out compared to the year to date trends. In the 4th quarter, revenue and net income were down compared to the previous three months in the same year. However, when considering the full 12 months of each year, revenue and income were both up for Texas Instruments.

Texas Instruments P&L

In the earnings release, management stated the decrease in revenue was from weakening demand. This is not surprising. This is something that has been telegraphed across the sector as PC demand is slowing and the work from home bubble began to burst. With sector wide layoffs, the demand will just continue to slow. Further, earnings were also hit due to increase supply chain issues and the impact of inflation. A double blow that caused Q4 results to dip compared to the previous 9 quarters in 2022 and the 4th quarter of 2021.

Still, despite the dip in Q4 results, Texas Instruments has performed very well in 2023. The company is up 10% year to date. Shockingly, Intel (INTC), the stock that slashed its dividend and frustrated investors (especially us), is also up 10% year to date. The sector is benefiting from the CHIPs Act, political noise driving support for US companies, and potential signs of increased demand and relief of the pressures that were dragging on the sector last year.

TXN stock graph

It is clear that Texas Instruments produces strong revenue, earnings and cash flow in good times or bad. Despite the lagging 4th quarter results, the company still had $4.7B in revenue and nearly $2B in net income.

Dividend Diplomat Stock Screener

To find and analyze undervalued dividend stocks, we use 3 SIMPLE metrics to evaluate every dividend stock. The goal of our stock screener is to identify if a stock is an undervalued dividend growth stock to buy.

Here is a rundown of the 3 metrics of our stock screener:

1.) Price to Earnings Ratio Less than the S&P 500. Currently, the S&P 500 is trading at a P/E Ratio of 21.23X.

2.) Dividend Payout Ratio Less than 60%. The payout ratio measures the safety of the dividend. This ensures the company can continue growing its dividend during good times and bad. That’s why it is a critical metric in our stock screener that we must evaluate! We think the perfect payout ratio range is between 40% and 60%!

Read: Dividend Aristocrats with a PERFECT Dividend Payout Ratio

3.) History of Increasing Dividends. We review this metric by reviewing the company’s five-year average dividend growth rate and consecutive annual dividend increases. Since we are long term investors, it is important that a company increases its dividend consistently!

Bonus: Dividend Yield. We like to also throw in a bonus metric to our dividend stock analysis. Yield does not drive our decision; however, we would be lying if we said we completely ignore dividend yield.

See the video below, for further details and explanation. If you don’t like to watch videos – see our Dividend Diplomat Stock Screener page!

Texas Instruments Results

Now let’s run Texas Instruments through our Dividend Stock Screener! TXN’s stock price is $179.51 per share at the time of this article. The company’s forward EPS is $7.62 per share and the annual dividend is $4.96 per share. Let’s see how the metrics shake out.

1.) Price to Earnings Ratio: 23.55x.

2.) Dividend Payout Ratio: 65%.

3.) History of Increasing Dividends: Pfizer’s 5 Year DGR is 16.37% and the company has increased its dividend for 17+ consecutive years. Almost halfway to becoming a Dividend Aristocrat.

4.) Dividend Yield: 2.76%


Overall, I love Texas Instruments. I’m happy that I started a position in the tech stock last year and built my position to 17.226 shares. Our average cost basis is $159.20 per share. At today’s price, I’m up over 12% on my cost basis. Again, we love the company and are pumped to have started this position. However, at the current prices, we are not buying the dividend stock today. The P/E ratio is too high after the price has risen to nearly $180 per share. With the current stock market environment, there are too many discounts to ignore in favor of Texas Instruments.

What do you think of Texas Instruments (TXN)? Are you buying today or are you passing like me? What other stocks are you buying instead?


Originally posted on dividenddiplomats.com


TXN, Buy

Texas Instrument...
Return: 10.09%

TXN, Buy

Return: 10.09%

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