Passive income can bring some stability to your portfolio. This is especially nice during times of macroeconomic uncertainty. With inflation at its highest level in 40 years and rising interest rates, the S&P500 fell 14% from its peak and many individual stocks were hit even harder. Owning a few high-quality dividend-paying stocks can help offset those losses.
In this spirit, Texas Instruments (TXN 2.00%) and American Tower (AMT -2.74%) look like smart long-term investments. Here’s why.
1. Texas Instruments
Semiconductor company Texas Instruments is often overlooked by more growth-oriented investors. But it currently pays a quarterly dividend of $1.15 per share, a yield of 2.7%, and the company has increased the quarterly payout for 18 consecutive years. More importantly, shareholders have good reason to believe that this trend will continue.
Texas Instruments is the leading manufacturer of analog chips and embedded processors. These chips may not get the same hype as graphics processing units, but they are essential for virtually every industry, especially the industrial, automotive, and personal electronics markets. In fact, analog chips are used in all electronic devices and embedded processors are used in most. This means that Texas Instruments stands to benefit from the proliferation of electronic devices.
Thanks to the growing demand for semiconductors, the company has achieved impressive financial performance over the past year. Revenue climbed 23% to $19 billion and earnings rose 32% to $8.74 per diluted share. More importantly, Texas Instruments has built a solid moat around its business that should keep it at the forefront of the analog processing and integration markets.
First of all, its economic model is very diversified. Texas Instruments manufactures 80,000 products for more than 100,000 customers. Second, it handles most manufacturing, assembly, and testing processes in-house. This reduces costs and improves supply chain visibility. Finally, some of its wafer fabrication facilities support a 300 millimeter production process – a term that refers to the diameter of the silicon on which the chips are fabricated. This is 40% cheaper than the 200 millimeter process used by most competitors.
For all these reasons, Texas Instruments looks like an investment that will beat the market over the next decade. Moreover, with a payout ratio of 49%, the company has enough leeway to increase its dividend. That’s why this stock is a smart buy.
2. American Tower
American Tower real estate investment trust (REIT) is a solid dividend stock. The quarterly payout currently stands at $1.40 per share, a yield of 2.2%. But the company has increased its dividend every quarter for the past decade and aims to increase the payout by 12.5% in 2022. Even better, investors looking for passive income have good reason to believe this trend will continue. will continue for many years.
American Tower is the market leader in the telecommunications tower industry. Its portfolio includes more than 219,000 communications sites in U.S. and international markets, and the company generates revenue primarily by leasing tower space to wireless service providers such as AT&T. To that end, its business should benefit from increased demand for wireless coverage and capacity, driven by the proliferation of smartphones and other connected devices.
American Tower continued to post strong financial results over the past year. Revenue rose 20% to $9.9 billion and funds from operations soared 37% to $5.5 billion. More importantly, the company is well positioned to maintain this momentum. Operators are densifying 4G networks and deploying 5G networks in mature markets like the US, and moving to 4G in less mature markets. These activities are expected to drive demand for American Tower real estate for years to come.
It should also be noted that the company has diversified its portfolio into data center real estate. Last year, it acquired CoreSite Realty for $10.4 billion, bringing its total holdings to 27 US data centers. Given the importance of data centers in the IT world, this move could boost its business in the future.
In short, American Tower enjoys a leadership position in a critical market, but it also has other opportunities for expansion. This should translate into above-market returns and steady dividend growth for shareholders.