Even with the recent price retrenchment, there’s not a lot of value circulating in this stock market. Everything’s already gone up and the capital gains have been great the last few years. But it’s still a slow-growth environment in the global economy, and despite a very accommodative monetary policy, stocks can’t go up forever without experiencing a meaningful retrenchment.
Company earnings are pouring in and there have been some disappointments. But for a lot of mature large-cap businesses, this is a reflection of their industries’ cycles. Large companies in mature industries don’t grow by very much more than the low single-digits.
Which is why a company’s dividends are so important in a stock market that’s at a high but offering little value.
It’s difficult to imagine stocks this year serving up double-digit returns on the back of 2013’s standout performance.
And investor sentiment has changed, too, with oil prices being the catalyst for the recent “deflation worry” sell-off. (See “Is This Stock Sell-Off Just a Blip?”)
The stock market’s existing winners are the way to go going into 2015. There’s plenty of cash in company coffers for more dividends and more share repurchases. It’s a formula that’s worked for large corporations over the last several years, and there’s no reason why it won’t keep working in a slow-growth environment.
Texas Instruments Incorporated (TXN) had a good quarter. The company beat Wall Street consensus, producing substantial double-digit gains in comparable earnings on eight-percent year-over-year revenue growth.
Texas Instruments achieved a new record in gross margin as both analog and embedded processors (which comprise just over 80% of the company’s total sales) sold well, and manufacturing efficiencies went right to the bottom line.
During the third quarter, Texas Instruments boosted its quarterly dividend by 13%, returning $4.2 billion to shareholders in total dividends and share repurchases. Earnings per share grew 36% over the same quarter last year to $0.76.
This quarter, Texas Instruments expects to grow its sales about eight percent over last year. This is higher than previous Wall Street consensus.
The company’s quarterly dividend has doubled over the last two years and that’s the untold story with this mature enterprise.
The company has tons of cash on its books, so it’s highly likely management will issue another dividend increase in 2015. The company increased its quarterly dividend twice last year.
With good performances from other chipmakers, Texas Instruments looks pretty solid going into 2015.
A lot of businesses are expecting decent business growth from the U.S. economy next year, but international operations are the wildcard.
With the stock market near it’s all-time high, dividend income becomes more important and it may become the only expected return as markets (and central banks) deal with the likelihood of slower economic growth on a global basis.
This is definitely a stock-picker’s market now. 2013’s surge has lost its momentum.