For the past few months, I’ve mentioned wanting to increase my investment in the technology sector. Well, today I did just that. It wasn’t a big splash, but it adds another terrific company to the Portfolio, and adds some additional dividends to the annual dividend income stream.
Today, I initiated a position in Texas Instruments, Inc. (TXN). TXN designs, manufactures, markets and sells semiconductors to various designers and manufacturers around the world. The company operates in two segments: Analog and Embedded Processing. Analog includes logic, power products, converters, amplifiers, sensors, etc. Embedded Processing includes microcontrollers and digital signal processors (DSPs).
My purchase came just a day after the market was apparently disappointed with TXN’s Q4 earnings report. It wasn’t that the earnings were poor, but TXN’s outlook was just not good enough to live up to the heightened expectations that came with a strong run up in the stock price in recent months.
TXN had been on a strong upward trajectory since last September, after hovering around the $80 mark for most of the first 8 months of 2017. Recently, TXN was at a 52-week high, at slightly over $120.
Here are my purchase details…
On 1/25/18, I purchased 25 shares at $110.40/sh, for a total of $2,760.00.
This purchase results in an additional $62 in annual forward dividend income, bringing the annual forward dividend total to just over $7,463.
TXN enters the Portfolio as the smallest position by a good margin. It also joins SWKS as another semiconductor company in the Portfolio.
I can easily see that TXN may be overvalued at my purchase level, as the price had risen about 50% in the last 4-5 months, and it trades at a higher than normal P/E ratio compared to the past few years. However, I decided to establish a small position (a little less than 1% of the portfolio), as I’m certainly more engaged following a stock I own compared to one I don’t, even if it’s a small position.
On the plus side, over the past 5 years, management has steadily increased both pre-tax profit margin and return on equity percentages, which I like. In addition, TXN has been aggressively increasing the dividend, especially over the past couple of years. The payout ratio is currently a bit over 50%, so there’s room for more healthy increases, especially if TXN can keep improving its cash flow.
Should TXN continue to fall, I’ll strongly consider averaging down. I could see making two or three similarly-sized purchases before concluding that I had a full position.
Over the next 5 years, I’m estimating that TXN may only grow annual sales at 4%, but can grow annual earnings at about a 10%-11% clip. At my purchase price, TXN has a 2.25% yield. This is a tad lower than my portfolio yield, but I expect TXN to offer above-average growth, and correspondingly above-average price appreciation.
Any thoughts on my TXN purchase price? Would you have held out for a lower entry point? Are there other tech names you would prefer at this time? Please share your thoughts in the Comments!