Texas instruments dividend policy
Texas Instruments Incorporated (TXN) has had a dividend policy since 1962. In contrast, the company’s peers in the technology sector, which include IBM Corporation (IBM), EMC Corporation (EMC), SanDisk Corporation (SNDK), and Oracle Corporation (ORCL), only recently started paying dividends to shareholders.
Over the last ten years, Texas Instruments’ dividend has grown consistently and consecutively, with an average annual growth of 22% in the last five years, as the chart below shows. In 3Q14, the company declared a quarterly cash dividend of $0.34 per share.
Low capital requirements frees up cash flow
As the above chart shows, the company’s 4% capital expenditure model frees up cash flow that can then be used to pay higher cash returns to shareholders. The company aims to keep its capital spending at about 4% of revenue until 2016. That will improve its bottom-line, or net income, its cash flow, and consequently, its overall financial position.
Strong margins and free cash flow generation augur well for dividends
As of 3Q14, Texas Instruments generated an operating cash flow of $2.62 billion. It holds cash and short-term investments worth $3.19 billion and carries a total debt of $4.64 billion. Its operating margins are improving from the mid-20s, and approaching the 30s. The company reported free cash flow of $3.45 billion in 3Q14.
Between its improving margins, strong free cash flow, and increased demand for its analog and embedded products, investors are assured of a reasonable chance that dividends will increase again in the future.