Most people have never heard of Taiwan Semiconductor Manufacturing (NYSE:TSM). However, this semiconductor dividend stock should definitely be on a smart investor's radar. With the coronavirus pandemic and its aftereffects crippling companies around the world, this third-party foundry has proven it has what it takes to excel even when the times are bad.
Solid growth rate
Taiwan Semiconductor is a dedicated foundry that manufactures semiconductors for other companies. It aims to lead in both semiconductor technology and manufacturing, providing an open collaboration platform to build enduring trust with its customers. And, it seems, the strategy really works.
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Taiwan Semiconductor has experienced strong growth: From 2015 to 2019, net revenue increased by a solid 26.9%, while net income increased 12.7%. However, as smart technology has become ever more central to consumers, the company's growth has begun to heat up. In the third quarter of 2020 alone, the company boosted its net revenue by 21.6% year over year, while net income increased by 35.9%.
Flexible model and 5G future
Taiwan Semiconductor is well-positioned for our interconnected future, or the Internet of Things (IoT). As a third-party foundry, the company's business model is inherently flexible. It does not need to design its own chips and prove their performance against the competitors; it only has to provide the technology and base for producers looking to make the best and fastest chips suited to their products' needs. By maintaining high-quality manufacturing processes and offering a collaborative platform to its customers, Taiwan Semiconductor ensures that it caters to producers across the spectrum even as technology rapidly evolves.
The company expects extremely strong demand as the future era of 5G dawns bright. 5G is the fifth generation of mobile networking, meant to deliver faster peak data speeds, ultra-low latency, and massive network capacity. It's a new kind of network designed to connect virtually everyone and everything. As such, 5G devices and products need superior, highly-efficient computing power.
Taiwan Semiconductor is the world's largest foundry, with a total foundry market share of 56%. Such a large, dedicated semiconductor manufacturer is able to support many different manufacturing technologies, including specialized tech ideal for IoT devices, smartphones, medical systems, and even wearables.
According to Qualcomm's 5G Economic Impact study, 5G will make mobile technology a $13.1 trillion industry by 2035, with a value chain supporting up to 22.8 million jobs worldwide. This projected growth trajectory will very likely support increasing demand for Taiwan Semiconductor's services for many years to come.
Decent dividend for the tech sector
Perhaps the most important detail about this company, though, is its commitment to a sustainable dividend payout. Taiwan Semiconductor prides itself on its clean balance sheet. It has relied on internally generated funds to finance growth. It started paying cash dividends to shareholders in 2004 and has never reduced its dividend per share since then. In 2019, the company paid out 259 billion New Taiwan dollars ($8.4 billion) in cash dividends, and it currently offers a 1.6% yield.
Admittedly, this is not an extremely high dividend. However, it is a decent payout for a technology company, whose representative companies in the S&P 500 index average a 1% yield. But given that many large cap companies grow at a significantly lower rate than Taiwan Semiconductor and do not issue dividends, this company currently offers the best of both worlds. With high gross margins, solid demand, and a decent yield, Taiwan Semiconductor is a very attractive buy for the adventurous dividend investor.
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December 10, 2020 at 07:52PM
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