We recently compiled a list of the Retirement Stock Portfolio: 7 Safe Dividend Stocks To Invest In. In this article, we are going to take a look at where Texas Instruments Incorporated (NASDAQ:TXN) stands against the other dividend stocks.
As investors near retirement, achieving financial stability becomes a top priority. Among the various investment choices, steady dividend payments hold particular appeal for their reliability and security. Dividends, which are a share of a company’s profits distributed to shareholders, offer a dependable source of income.
Research shows a growing trend of Americans retiring earlier than expected, often due to circumstances beyond their control. According to a study by the Transamerica Center for Retirement Studies and the Transamerica Institute, 58% of workers retire earlier than planned. The most frequently cited reasons for early retirement include health-related issues, which account for 46%, followed by employment challenges at 43%, and family obligations at 20%. Interestingly, only 21% cited financial stability as the reason for early retirement. The median retirement age is now 62, falling three years short of the traditional retirement age of 65.
Also read: Retirement Stock Portfolio: 10 Consumer Stocks To Buy
Dividend stocks are becoming an increasingly important component of a well-diversified retirement portfolio for many investors. Carefully selected dividend-paying stocks can provide stability during market downturns and enhance returns during rallies by generating quarterly income that offsets losses and boosts gains. In addition, they can serve as a safeguard against inflation, which has become a growing concern due to rising food and energy costs. Some top-performing companies have consistently increased their dividend payouts year after year for decades. David Giroux, a portfolio manager at T. Rowe Price who manages the firm’s capital-appreciation strategy, spoke about dividend stocks in one of his interviews with Barron’s. Here are some comments from the analyst:
“To have a retirement portfolio that has a significant component of stocks with attractive dividends makes a tremendous amount of sense. If the average company in the market can grow its earnings at 7% to 8% a year, your dividends should be growing at a similar rate.”
Analysts emphasize that while income and growth are essential for savers to sustain a potentially lengthy retirement, this strategy has its limitations and may not suit everyone. They recommend a portfolio diversified across various sectors and companies with substantial cash reserves to support stock buybacks. Dave King, a senior portfolio manager at Columbia Threadneedle Investments, highlighted in an interview with Barron’s the importance of simple diversification. He suggested holding at least eight stocks from different sectors, noting that diversification doesn’t need to be excessive but should include more than a few stocks—ideally more than five, with one representing each broad sector. According to King, when selecting stocks for such a portfolio, it’s important to avoid placing too much weight on Wall Street research. Instead, the focus should be on fundamental, historically proven factors like a company’s credit rating or the reputation of its management, which can provide valuable insight into the reliability of its dividend payments.
Dividend growth stocks are highly sought after for a retirement stock portfolio. Data from S&P Dow Jones Indices highlighted their appeal, showing that the Dividend Aristocrats Index delivered a total return of 12.08% from 1990 to 2019. This outpaced the broader market, which had a return of 9.95% over the same period, making these stocks attractive not only to retirees but to investors of all ages. In this article, we will take a look at some of the best dividend stocks for a retirement stock portfolio.
Our Methodology:
For this list, we used a screener to select dividend stocks that have shown at least 10 years of dividend growth and are spread across various industries, making them suitable for a retirement stock portfolio. From the initial selection, we chose seven stocks, each from a different industry, all with yields of at least 2%. Next, we arranged them in ascending order of the number of hedge funds having stakes in them, according to Insider Monkey’s database of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A robotic arm in the process of assembling a complex circuit board – showing the industrial scale the company operates at.
Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 57
Texas Instruments Incorporated (NASDAQ:TXN) is a Texas-based multinational semiconductor company that produces analog and embedded chips. The company concentrates on analog processing and embedded processing segments, both of which are vital. Analog technology handles real-world signals, while embedded technology enables various automated functions in electronics. Recently, the company has been focusing on enhancing its manufacturing capabilities, especially in 300mm wafer production, with the goal of achieving cost efficiencies. The stock has surged by over 11% since the start of 2024.
In the third quarter of 2024, Texas Instruments Incorporated (NASDAQ:TXN) reported revenue of over $4.1 billion, compared with $4.5 billion in the same period last year. The company’s operating profit and net income came in at over $1.55 billion and $1.36 billion, respectively. Its cash position remained strong. The company reported an operating cash flow of $6.2 billion for the trailing 12 months, highlighting the strength of its business model, the quality of its product portfolio, and the advantages of 300mm production. Free cash flow for the same period was $1.5 billion. Over the past year, the company invested $3.7 billion in R&D and SG&A, $4.8 billion in capital expenditures, and returned $5.2 billion to its shareholders.
The London Company mentioned TXN in its Q2 2024 investor letter. Here is what the firm has to say:
“Texas Instruments Incorporated (NASDAQ:TXN) – TXN rallied in 2Q despite declining revenue in its latest update. TXN is beginning to see some encouraging signs of destocking nearing an end and some sub segments of the market are experiencing improving demand. TXN continued to spend on capex and should begin to see positive benefits to cash flow next year from the CHIPS Act.”
Texas Instruments Incorporated (NASDAQ:TXN) has a strong dividend history, having raised its payouts for 21 consecutive years. During this period, the company has raised its payouts at a CAGR of 24%. Currently, it pays a quarterly dividend of $1.36 per share and has a dividend yield of 2.89%, as recorded on December 17.
The number of hedge funds tracked by Insider Monkey owning stakes in Texas Instruments Incorporated (NASDAQ:TXN) grew to 57 in Q3 2024, from 50 in the previous quarter. The total value of these stakes is nearly $3 billion. With over 4.2 million shares, First Eagle Investment Management was the company’s leading stakeholder in Q3.
Overall TXN ranks 3rd on our list of the best stocks for a retirement portfolio. While we acknowledge the potential for TXN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TXN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.