Chip stocks have taken the market by storm over the past several years, racking up huge returns in many cases. However, many of these high-flying stocks are not returning value to their shareholders in the form of dividend income. Thankfully, there are companies in this industry that can be looked at to provide dividends. Below, I’ll detail three of these firms.
Everything’s Bigger (Including Dividends) in Texas
First up is Texas Instruments (NASDAQ: TXN). The integrated device manufacturer (IDM) has a next 12 months forecasted dividend yield of 2.7%. Although this level is nothing groundbreaking, it's much higher than the average of U.S. stocks in this industry of around 0.6%. As an IDM, Texas Instruments both designs and manufactures its chips.
Texas Instruments' main focus is on producing analog chips. These chips take in real-world inputs, such as sound or temperature, and then convert that information into digital form. Analog chips made up 74% of the company’s revenue in 2023. These chips are used largely in the industrial and automotive industries. These markets comprised 50% and 34% of the company’s total sales in 2023, respectively.
The company calls its other segment "embedded processing." It focuses on executing software commands, rather than taking in real-world signals. Texas Instruments boasted an impressive 32% operating margin in the last quarter, which ranked as the fifth highest among U.S. semiconductor stocks. Additionally, the company’s stock has been rising this year, despite the fact that its industry has seen slowing activity.
Shares are up 18% this year; however, revenues dropped nearly 16% last quarter. Unfortunately, forecasts for earnings don’t look much better, with earnings expected to drop by 25% over the next year. However, this creates a relatively low bar for the company to jump over, meaning it might be able to surpass expectations.
Qualcomm’s Dividend Yield Shows a Notable Income Stream
Next up is Qualcomm (NASDAQ: QCOM). This chip stock has a next 12 months forecasted dividend yield of just over 2%. Again, nothing special, but significantly more than the 0.03% yield that NVIDIA (NASDAQ: NVDA) provides. Qualcomm’s business is largely based on designing chips for mobile devices and laptops. The company is a fabless chip designer, meaning it only designs its chips and has them manufactured by another company.
The company’s Snapdragon chips are often found in Android smartphones and Windows-based laptops. It makes chips for a range of devices, from low-tier to premium smartphones. In 2023, mobile devices contributed to 63% of the company’s revenues. Most of the rest came from the Internet of Things (IoT) and licensing.
Qualcomm has a large library of patents that it licenses to other companies. In 2023, the United States government issued Qualcomm the second-most patents. This part of Qualcomm’s business is very profitable.
The segment had an earnings before taxes (EBT) margin of 68% in 2023. Wall Street analysts are most bullish on Qualcomm among stocks on this list, based on its average price target. The average price target of $217 implies that the stock could rise 30% from its current level.
Broadcom Hasn’t Forgotten About Dividends Either
The last company on this list of dividend-paying chip stocks is Broadcom (NASDAQ: AVGO). Broadcom’s dividend yield is the least of this bunch, coming in at a small but still notable 1.3%. One part of Broadcom’s business where it stands out is in making application-specific integrated circuits (ASICs).
These chips perform specific tasks extremely well, increasing their speed and energy efficiency. However, they are not made to do a broad set of tasks, which is something graphics processing units (GPUs) are very good at. Broadcom is also a fabless chip company and is a leader in ASICs. Broadcom stock has had a fantastic year in 2024, with its share price up nearly 57%. This ranks in the top five among U.S. semiconductor firms.
The company’s strong margins are notable. Its 76% gross margin last quarter is slightly higher than NVIDIA's, and its 32% operating margin was just below that of Texas Instruments. Broadcom's average price targets imply a 9% upside. Still, 37 analysts rate it a buy, with none rating it a sell.
Analysts expect the company to show continued strength, projecting revenue to rise 44% over the next year, and anticipate EPS to increase 15%. Markets will be looking for the company to meet or exceed these strong expectations.
