The Federal Reserve is proving to be very serious in its attempts to rein in inflation and investors are feeling the pain. On September 13, the Bureau of Labor Statistics (BLS) reported inflation of 8.3% in July, slightly lower than in June, but still at the highest levels Americans have faced in four decades. As a result, the Federal Reserve is expected to raise interest rates again when it meets on September 20-21. Since the BLS removed July inflation data, stock indices are down 5% or more as higher rates mean higher bond yields, making stocks less attractive at higher valuations. tall.
What should an investor do? One way to help boost your returns is to buy the best high-yielding dividend stocks, especially companies with a long history of increasing their payouts. Sure, you still have short-term volatility to deal with, but those regular paychecks make it easier to weather instability, and in the long run, dividend increases offset rising rates and inflation, and help create significant wealth you can count on.
One of my top dividend stocks to buy right now is Texas Instruments (TXN 0.60%). With 14 dividend increases since 2010, it has a long history of financial strength and rewarding investors, and its future looks just as bright.
Why Investors Are Worried About Semiconductor Stocks
You might be wondering how a semiconductor company could help investors sleep at night; after all, this is a difficult time for the industry. The last few years have been very good for investors, with massive demand for chips generating record sales and profits. More recently, supply shortages have been a challenge, and companies have committed to spending hundreds of billions of dollars on capital expansion projects.
But in recent quarters, demand has weakened. Rising inflation is weighing on the global economy, and much of the pent-up demand during the coronavirus pandemic has eased. So now, many chip companies are facing weakening demand, while they still have plans to spend billions on new production capacity in the coming years. With sales weakening and interest rates rising, companies may need to rely on more high-interest debt to finance those projects. Y that could weigh on future returns for investors.
But that’s a short-term (and myopic) way of thinking.
Sure, the semiconductor industry is capital intensive and cyclical. This is particularly true for the most advanced digital chips, which have a lifespan of around a year before the next newer, faster chips are developed and commercialized. This requires foundry operators, such as Samsung, Taiwan SemiconductorsY Intel continually invest new money to improve its manufacturing capabilities. And that can result in them having large capital commitments at the same time demand weakens. And this is probably one of the reasons why Intel just partnered with Brookfield Infrastructure to finance the construction of two new factories.
Point? This cyclical nature is neither surprising nor new to the industry. and while they can being a risk, it is also an opportunity for patient and long-term focused investors.
Which brings me back to why Texas Instruments is different.
Unlike its peers in digital semiconductors, Texas Instruments specializes in analog chips. While perhaps not as exciting as the next-generation processors rolling out of Taiwan Semi factories, those analog chips are incredibly important. Do you need to get power for a digital semiconductor? You need an analog chip. Do you want to get sound or video from it? Analog chips once again. In short, analog semiconductors are how digital semiconductors interact with the real, analog world.
Even better, the applications for many of its chips are broad and stable, and it’s much more important that a chip performs reliably and is available for many years than it is to be the most advanced. For example, the average car on US roads is over a decade old; Older cars rely on the analog semiconductors that do so many things in modern cars, so have to be available for many years. As a result, Texas Instruments has been making the exact same semiconductors for more than a decade. Talk about delivering an incredible return on the capital you spend to build those foundries.
Here’s why it’s a buy right now
As a result of its focus on this ultra-important and boring segment of the chip industry, Texas Instruments has been able to build some amazing economic moats. It has cost advantages for its production of 300-millimeter wafers, resulting in ultra-low manufacturing costs. It has network effect benefits, with 80,000 products and over 100,000 customers across multiple industries. The more customer applications you can satisfy, and the more customers you work with, the more products you can develop that meet the needs of more customers.
Combine these competitive advantages with the growing demand for semiconductors worldwide, and Texas Instruments is positioned to continue its incredible multi-decade streak of shareholder earnings. Since 2004, it has increased cash flow per share an average of 12% per year, increased the dividend 18 consecutive years and bought back nearly half of the shares outstanding. Investors have enjoyed an astonishing 716% in total returns during that period.
At recent prices, Texas Instruments’ dividend yield has increased to almost 3%, right above the average performance of the last decade. The company has a long history of strong financial results, strong economic moats and strong tailwinds, and investors concerned about rising interest rates should take advantage of the recent sell-off and add Texas Instruments to their portfolios.
Jason Hall has positions in Intel, Taiwan Semiconductor Manufacturing and Texas Instruments. The Motley Fool has positions and recommends Intel, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends the following options: January 2023 Long Calls $57.50 at Intel and January 2023 Short Options $57.50 at Intel. The Motley Fool has a disclosure policy.