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5 Semiconductor Stocks Paying Hefty Dividends

This article will examine five companies that are involved in the semiconductor business. Despite the fact that these companies are generally considered to be technology companies, their stocks bear the characteristics of old established value investments. These stocks have relatively low valuations and pay competitive dividends. With the exception of Aixtron SE, (AIXG) the stocks have relatively low betas. Perhaps one or more of these stocks could be a good fit for your portfolio.

Intel (INTC) has a market cap of $138.5 billion with a price to earnings ratio of 11.6. The stock has traded in a 52 week range between $19.16 and $27.96. The stock is currently trading near its 52-week high at around $28. The company reported fourth quarter revenues of $13.8 billion compared to revenues of $11.4 billion in the fourth quarter of 2010. Fourth quarter net income was $3.3 billion compared to net income of $3.1 billion in the fourth quarter of 2010.

One of Intel’s competitors is Brooks Automation Inc. (BRKS). Brooks is currently trading around $12 with a market cap of $762 million and a price to earnings ratio of 7.28. Brooks pays a dividend which yields 2.7% versus Intel whose dividend yields 3%.

Intel is the world’s largest semiconductor company. The company increased its year-over-year fourth quarter revenues by 21% and net income by 6%. Even though Intel is considered to be a technology company, it is actually more of a value investment. Its valuations (price to earnings ratio 11.6/price to book ratio 3) are lower than its competitors Advanced Micro Devices (AMD) and Texas Instruments (TXN). The dividend is $0.84 per share with a 3% yield. Over the last five years, the dividend has increased five times by 85.8%. The company’s margins (gross margin 62.5%/operating margin 32.3%) exceed the industry averages.

Investors have noticed that Intel is making inroads into the cloud computing area, and have pushed the stock price up by 37% over the last 52 weeks. Investors should be careful because the stock price has made a strong move upward. However, I would recommend this stock if the price dropped below $26. Prospective investors should do further research.

KLA-Tencor (KLAC) has a market cap of $8.6 billion with a price to earnings ratio of 11.7. The stock has traded in a 52-week range between $33.20 and $53.05. The stock is currently trading around $52. The company reported second quarter revenues for the period ending on December 31, in the amount of $642 million compared to revenues of $766 million in the second quarter of 2010. Second quarter net income was $110 million compared to net income of $185 million in the second quarter of 2010.

One of KLA’s competitors is Qualcomm Incorporated (QCOM). Qualcomm is currently trading around $65 with a market cap of $110.6 billion and a price to earnings ratio of 25. Qualcomm pays a dividend which yields 1.3% versus KLA whose dividend yields 2.7%.

KLA designs and markets equipment for semiconductor manufacturers. In the second quarter, the company’s year-over-year revenues decreased by 19% and its net income decreased by 68%. KLA indicated that the reduced earnings were a result of a slowing global economy. Company executives believe that third quarter earnings will rebound. In the second quarter earnings call, KLA’s CEO Richard Wallace said that the company’s “Gross bookings in Q2 were $950 million, an increase of 95% compared with September and the second highest quarterly bookings result in company history." The company’s CFO Mark Dentinger said, “In summary, our guidance for Q3 is: new orders between $825 million and $975 million; total revenue between $770 million and $830 million.”

The company stock trades like a value investment. The valuations (price to earnings ratio 11.71/price to book ratio 2.91) are low for a technology company. Also, the company pays an attractive dividend of $1.40 per share. The company has paid a quarterly dividend since 2005, and has increased the dividend three times by 191% over the last five years. The stock price has increased by 13% over the last 52 weeks. Prospective investors should do further research.

Applied Materials (AMAT) has a market cap of $16.5 billion with a price to earnings ratio of 12.9. The stock has traded in a 52 week range between $9.70 and $15.97. The stock is currently trading around $13. The company reported first quarter revenues for the period ending on January 29, in the amount of $2.2 billion compared to revenues of $2.7 billion in the first quarter of 2010. First quarter net income was $117 million compared to net income of $506 million in the first quarter of 2010.

One of Applied Material’s competitors is Lam Research (LRCX). Lam Research is currently trading around $43 with a market cap of $5.2 billion and a price to earnings ratio of 12.9. Lam Research does not pay a dividend versus Applied Material whose dividend yields 2.8%.

Applied Material provides manufacturing equipment for semiconductor manufacturers. In the first quarter, the company’s year-over-year revenues decreased by 22% and its net income decreased by 332%. Applied Material is a supplier of semiconductor and semiconductor-related fabrication equipment. Moving into the future it is expected that the company’s semiconductor business will continue to slow. However, increased foundry demand will help it increase it fabrication equipment business. The company is not expected to realize significant earnings increases in the near future. The stock price has reflected the company’s dismal outlook and is down by 16% over the last 52 weeks. Prospective investors should do further research.

Microchip Technology (MCHP) has a market cap of $7 billion with a price to earnings ratio of 19.4. The stock has traded in a 52 week range between $29.30 and $41.50. The stock is currently trading around $36. The company reported third quarter revenues for the period ending on December 31, in the amount of $329 million compared to revenues of $367 million in the third quarter of 2010. Third quarter net income was $77 million compared to net income of $100 million in the third quarter of 2010.

One of Microchip’s competitors is STMicroelectronics NV (STM). STMicroelectronics is currently trading around $8 with a market cap of $7.2 billion and a price to earnings ratio of 11.28. STMicroelectronics pays a dividend which yields 4.2% versus Microchip whose dividend yields 3.8%.

Microchip engages in the design and manufacturing of semiconductors. In the third quarter, the company’s year-over-year revenues decreased by 11% and its net income decreased by 30%. Microchip like most other semiconductor manufacturers has suffered through a recent decrease in demand for their products. The company predicted “Two quarters ago was that industry was going into a broad-based demand weakness and inventory correction. Our thesis has played out exactly as we have predicted.” Microchip’s CEO Steve Sanghi now says, “In the last earnings call, we said that we saw December as the bottoming out quarter for the current cycle for Microchip. We are reconfirming our belief that December was a bottom quarter for this cycle, and we will begin to see a sequential revenue growth starting in the March quarter.”

Microchip pays a hefty dividend of $1.40 per share and has increased the dividend in nearly every quarter for the last five years by a total of 216%. Over the last 52 weeks, Microchip’s stock price has been flat. Prospective investors should do further research.

Aixtron SE (AIXG) has a market cap of $1.9 billion with a price to earnings ratio of 18.3. The stock has traded in a 52 week range between $11.18 and $44.90. The stock is currently trading around $19. The company reported fourth quarter revenues of $140 million compared to revenues of $224 million in the fourth quarter of 2010. Fourth quarter net income was $-11 million compared to net income of $61 million in the fourth quarter of 2010.

One of Aixtron’s competitors is Novellus Systems Inc. (NVLS). Novellus is currently trading around $48 with a market cap of $3.2 billion and a price to earnings ratio of 15.1. Novellus does not pay a dividend versus Aixtron whose dividend yields 3.2%.

Aixtron is a German-based company that provides equipment that is used in the production of LED lighting systems. In the fourth quarter, the company’s year-over-year revenues decreased by $84 million and its net income decreased by $72 million. The company’s fourth quarter earnings suffered from what was CEO Paul Hyland called a “very challenging macroeconomic environment.” Mr. Hyland went on to say that “Asian LED customers began to feel the effects of rapidly declining consumer confidence and a consequent lower demand for LED backlit TVs and monitors.”

As a result of decreased demand, the company sharply reduced its future earnings projections. Aixtron has made annual dividend payments since May of 2008, and has increased the dividend three times by 676% since its inception. The current dividend is $0.60 per share. The stock price is up by 306% over the last three years but has slipped by 56% over the last 52 weeks. Aixtron is in a downward trend, and I would not recommend the stock. Aixtron's stock is highly speculative, and prospective investors should do further research.

About the author:

StockCroc
I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.

I fundamentally analyze every business from the top down.

In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.

Visit StockCroc's Website


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