What are we looking for?
Sustainable dividends from makers of the specialized chips now driving artificial intelligence applications.
The screen
This week, the U.S. Department of Commerce revoked licences allowing Intel Corp. and Qualcomm to sell Huawei Technologies Co. the computer chips used to power AI applications for laptops and handsets.
The export restrictions are meant to block the Chinese telecom equipment maker from piggybacking on U.S. tech to develop competing AI capabilities.
Meanwhile, China has adopted its own new guidance to limit the use of U.S.-made chips and servers in government computers.
All this will cut revenue for U.S. chip makers. However, the outlook for the industry’s top players remains bright given their rising production of complex AI-focused chips. The uses – from facial- and speech-recognition applications to generating text for chatbots like ChatGPT – appear to expand by the day.
Our search started with a list of U.S. and Canadian stocks with significant exposure to AI chips and with the financial clout to pay sustainable dividends. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point if the company is a leader in its industry.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated eight stocks. San Diego-based Qualcomm Inc. QCOM-Q focuses on chips and software for wireless devices, including AI applications. Intel Corp. INTC-Q, based in Santa Clara, Calif., is one of the world’s biggest makers of chips for PCs and servers. That includes its new Gaudi 3 processor for AI applications. Nvidia Corp. NVDA-Q, also headquartered in Santa Clara, is the leader in graphics and multimedia chips, including cutting-edge chips that handle AI workloads. Chipmaker Marvell Technology Inc. MRVL-Q, headquartered in Delaware, is well positioned in AI – including supplying optical interconnect technology for Nvidia’s AI chips. (Note, like Nvidia, Marvell’s dividend yield is low, reflecting its heavy reinvestment in R&D to stay ahead of competitors.) Texas Instruments Inc. TXN-Q, headquartered in Dallas, sells chips and technology used in a variety of applications, including AI. San Jose, Calif.-based Broadcom Inc. AVGO-Q is a major maker of AI-related chips. Finland’s Nokia Corp. NOK-N is now working with Nvidia to use that firm’s processors with its own software to develop AI for telecom infrastructure and services used by mobile operators. Finally, Analog Devices Inc. ADI-Q, headquartered in Massachusetts, makes a range of specialized chips and technology for AI applications.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton