What are we looking for?
Sustainable dividends from makers of the specialized chips driving 5G smartphones, such as the new iPhone 15.
The screen
Apple has commanded news headlines this week – and not just because of the launch of its new iPhone 15. The company also extended its 5G modem chip contract with Qualcomm Inc. until 2026 – so far, it has been unable to develop those chips on its own for its 5G-enabled iPhones.
The deal highlights the difficulties of developing 5G-specific chips such as Qualcomm’s. Those challenges only boost the prospects of that company and other 5G chip makers. It also shores up the cash flow needed for research and development, and dividends.
Our search started with a list of U.S. and Canadian stocks with significant exposure to 5G chips and the financial strength 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 to cover dividends;
- one point if the company is 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; four to six points for average sustainability; and one to three points for those with below-average sustainability.
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, and the TSI Dividend Advisor. 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 5G. Intel Corp. INTC-Q, based in Santa Clara, Calif., which is one of the world’s biggest makers of chips for PCs and servers. It recently agreed to collaborate with Swedish telecommunications gear maker Ericsson to make a custom chip for Ericsson’s 5G networking gear. Nvidia Corp. NVDA-Q, also headquartered in Santa Clara, is a leader in graphics and multimedia chips, including chips that handle 5G workloads. Marvell Technology Inc. MRVL-Q, headquartered in Delaware, produces chips for a range of 5G applications, including for 5G base stations. (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, based in Dallas, sells chips used in a variety of industries, including 5G telecommunications. San Jose, Calif.-based Broadcom Inc. AVGO-Q is a major 5G chip maker and just signed a multiyear, multibillion-dollar deal with Apple to develop 5G components and other wireless connectivity parts. Apple already partners with Broadcom to make WiFi and Bluetooth tech for its iPhones. Finland’s Nokia Corp. NOK-N works closely with companies such as Broadcom on 5G chip development. It also just signed a long-term patent agreement with Apple covering Nokia’s 5G and other inventions. Finally, Analog Devices Inc. ADI-Q, headquartered in Massachusetts, makes a range of chips for 5G networking gear.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton