The technology sector is widely recognized for its potential for growth, overshadowing its capacity for consistent dividend payouts. However, within the realm of tech stocks, companies that offer dividends often possess a rich history of continually enhancing their payouts, demonstrating an alluring potential for investment.
Take chip giant Texas Instruments (NASDAQ: TXN), for instance, which commenced dividend payments in 2004. Though the initial dividend was modest, the company has bolstered its dividend with a staggering 25% annualized increase over the past 20 years, resulting in the current dividend being 58 times higher than its inaugural distribution.
A Bumpy Ride for Micron
Memory and storage chipmaker Micron (NASDAQ: MU) introduced its dividend in late 2021, capitalizing on the heightened demand amidst the pandemic and its technological supremacy over competitors.
However, unforeseen challenges plagued Micron as the post-pandemic economy and record-breaking interest rate escalations triggered a substantial dip in demand in 2022 and 2023. Despite slipping into negative profitability during this period, the company astonishingly opted to enhance its dividend by 15% in 2022, resonating in a current yield of 0.52% at present valuations.
Nevertheless, the tides have now turned. Major memory firms have collectively curtailed production by 25%-30%, while demand is on the upswing, striving to reconcile with supply. Memory prices are on the ascent, with a research firm projecting a 13%-18% increase for DRAM and a 15%-20% upsurge for NAND flash in the current quarter alone.
As high-bandwidth memory DRAM (HBM) emerges as an instrumental bottleneck for AI systems, the corresponding surge in demand spells a sustained rally for DRAM memory. Micron missed the initial HBM surge but has now released its new HBM3E product, boasting an impressive 10% performance boost and 30% less power consumption than the closest incumbent solution in the market.
Micron’s belated resurgence in the HBM arena, coupled with its enhanced technological prowess under CEO Sanjay Mehrotra, has positioned it and industry analysts to expect substantial allocations on Nvidia’s GH200 superchip platforms in the first half of this year. Despite experiencing a significant revival from its lows, Micron’s stock price remains below its all-time high from early 2022, suggesting a probable uptick once the company secures profitability and augments its dividend payouts.
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T-Mobile: A Hidden Gem
Investors exhibited a relatively subdued response to T-Mobile’s (NASDAQ: TMUS) latest earnings report, despite the company’s remarkable feat of surpassing analyst projections for postpaid phone net subscriber additions in the fourth quarter, amassing an impressive 934,000 compared to estimates of 874,000. These gains substantially outstripped those of AT&T and Verizon.
Initial concerns about an earnings per share “miss” were primarily attributed to non-core items such as accelerated depreciation on existing assets and severance expenses from the company’s late-summer restructuring and layoffs. Furthermore, residual integration charges stemming from the 2020 Sprint acquisition contributed to the purported “miss.”
However, the pivotal factor for investors revolves around adjusted free cash flow, with management forecasting a 22% growth in 2024, ranging between $16.3 billion and $16.9 billion. Additionally, T-Mobile habitually engages in phone lease securitizations, typically yielding over $4.8 billion in each of the last two years. Consequently, the company’s $193 billion market cap renders the stock at merely 10 times this year’s anticipated free cash flow, implying an undervaluation despite its industry-leading growth and 5G dominance.
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Intel’s Turbulent Journey
Intel (NASDAQ: INTC) faced a tumultuous phase over the past five years, culminating in a dividend reduction to $0.50 annually from $1.46. Despite this diminished payout, it still presents a 1.15% yield at the current depressed stock price.
Whereas the company was making substantial progress in executing its ongoing turnaround until the recent earnings report, it delivered revenue and adjusted non-GAAP earnings per share in the fourth quarter that notably exceeded analyst estimates. The subsequent downward spiral of the stock price stemmed from the guidance provision, signaling a revenue midpoint far below consensus figures and inviting an 11.9% decline.
Nevertheless, there are grounds to believe that the apprehension may be exaggerated. A substantial portion of the shortfall is attributed to known declines in Intel’s Mobileye unit, which, albeit publicly traded, has been intertwined with Intel, resulting in a shaded representation of Intel’s broader performance.
Intel Faces Tough Road Ahead Amid Revenue Decline
Intel recently announced a significant 50% sequential revenue decline, citing customer inventory corrections. Additionally, the company noted a downturn in its PSG programmable chip business, aligning with a broader correction within the semiconductor market.
Steadying the Ship
Despite these setbacks, Intel is finding solace in its “core” units, including PC client and data center chips. CEO Pat Gelsinger reassured investors by highlighting that the company has not experienced any market share loss in these critical areas, a positive indication for the company’s stability.
Technological Progress
Intel’s technological roadmap appears to remain on track, with the company aiming to achieve five nodes in four years, positioning itself to compete with industry frontrunner Taiwan Semiconductor Manufacturing. Furthermore, Intel’s new Gaudi 3 AI processor remains on schedule for production this year. Gelsinger also reported a robust demand pipeline for the Gaudi processor, which expanded by double digits sequentially in the last quarter, surpassing the $2 billion threshold mentioned in the prior quarter’s call.
A Long Way to Go
While Intel has made notable progress, the company still faces a challenging path ahead. The management’s forecast for free cash flow in 2024 sits at just breakeven, a stark reminder of the hurdles that lie in the company’s turnaround efforts. However, this figure represents a substantial improvement from the $11.8 billion cash burn experienced in fiscal 2023, signifying a positive trajectory. The market’s reaction to the weak guidance seems to stem from the less essential parts of Intel’s portfolio, providing an opportunity for enterprising investors to acquire shares at an advantageous price.
Investment Consideration
Though Intel confronts significant headwinds, the company’s commitment to reviving its core business areas offers a glimmer of hope. If Gelsinger and the Intel team continue to demonstrate proficiency in CPU and AI accelerator segments, this could present a compelling opportunity for investors to capitalize on the ongoing turnaround effort.
