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What are we looking for?

Sustainable dividends from top-quality computer chip makers.

The screen

Graphics chip maker Nvidia Corp. recently announced plans to acquire smartphone chip maker Arm Holdings LLC for US$40-billion. The whopping sum for the British-based company highlights the big profits available in this expanding computer segment.

While Intel Corp. continues to dominate the personal computer and data centre markets, there’s still room for competitors looking to win market share. But it’s new, emerging chip segments – focused on cloud computing, self-driving vehicles, 5G and artificial intelligence – that offer the most exciting growth potential.

Chip companies, in general, have seen strong demand for their products this year as COVID-19 work-from-home and distance-learning trends fuel sales. Our search focused on global chip makers offering investors long-term future gains, plus sustainable dividends. From there, we applied our TSI Dividend Sustainability Rating System, awarding 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 for an industry leader.

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 seven stocks. Intel is the world’s biggest maker of chips for PCs and servers, while Nvidia leads in graphics and multimedia chips. (Note: Nvidia’s sharp share price gains are reflected in its now-minuscule yield.) Texas Instruments Inc. sells chips and electronic products worldwide. Qualcomm Inc. focuses on wireless devices. Broadcom Inc. and Analog Devices Inc. serve a range of computer-chip markets. Taiwan Semiconductor Manufacturing Co. Ltd. doesn’t design its own chips, but rather makes them for customers including Apple Inc., Qualcomm, Broadcom and many others.

We advise investors to do additional research on any investments we identify here.

Select U.S.-listed chip makers

Ranking*CompanyTickerDiv. Sustain. RatingPointsMkt. Cap. (US$ Mil.)Dividend Yld. (%)1Y Ttl. Rtn. (%)Recent Price (US$)
1Intel Corp. INTC-QAbove Average8212.72.6-3.550.37
2Texas Instruments Inc.TXN-QAbove Average8128.82.68.8139.68
3Taiwan Semiconductor (ADR)TSM-NAbove Average8445.21.786.483.13
4Nvidia Corp.NVDA-QAbove Average8320.60.1177.8500.58
5Broadcom Inc.AVGO-QAbove Average7148.43.527.2367.04
6Qualcomm Inc.QCOM-QAbove Average7131.52.346.8114.56
7Analog Devices Inc.ADI-QAbove Average742.82.20.3115.56

Source: Dividend Advisor.

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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