Investors with a focus on dividend growth investing might be interested to know that three large companies in the information technology sector recently raised the size of their dividend payments. For those counting on dividends in retirement, payment increases can help improve financial stability.
Accenture PLC (ACN, Financial), Microsoft Corporation (MSFT, Financial) and Texas Instruments Incorporated (TXN, Financial) each recently raised their dividends and are paying a yield near or above their respective five-year averages. Even better, each name trades at a sizeable discount to its GF Value and has excellent return potential based on the GF Score.
First up is Accenture (ACN, Financial), one of the largest professional services companies in the world. The company provides consulting, outsourcing and technology services to customers in the businesses of communications, media, banking, health care and travel, among others. Accenture is valued at $164 billion and has generated revenue of close to $62 billion over the last year.
On Sept. 21, Accenture raised its dividend 15.5% to $1.12 for the upcoming Nov. 15 payment date, extending the company’s dividend growth streak to 12 years. Over the last decade, the company’s dividend has a compound annual growth rate (CAGR) of 11.2%, putting the most recent increase solidly above the long-term average.
Shares of the company yield 1.8% on a forward basis, which is just above the five-year average yield of 1.7%, according to Value Line.
Following a nearly 36% decline in share price, Accenture is now trading well off of its intrinsic value according to the GF Value chart.
Accenture closed Friday’s trading session at $259.98. The stock has a GF Value of $333.31, resulting in a price-to-GF-Value ratio of 0.78. Reaching the GF Value would mean a more than 28% gain in the share price. Accenture is rated as modestly undervalued.
Based on its GF Score of 99 out of 100, this stock has high potential to outperform based on a historical study by GuruFocus.
This incredibly strong GF Score is driven by top marks in multiple areas. For example, Accenture receives a 10 out of 10 for its profitability, growth and momentum ranks. The company’s margin results and momentum metrics are industry leading. The same goes for return on equity and return on assets.
Financial strength is still solid at 8 out of 10, driven by Accenture’s ability to successfully use invested capital to grow its business. The company has a return on invested capital (ROIC) of 23.7% compared to a weighted average cost of capital (WACC) of 6.9%.
The second technology name recently raising its dividend is Microsoft (MSFT, Financial), one of the largest companies in the world with a market capitalization of $1.8 trillion. The company provides software and hardware to both consumers and businesses. Microsoft’s cloud services are one reason the company has become so valuable. Other products include video games and gaming hardware. The company has produced revenue of approaching $200 billion over the last year.
Microsoft announced on Sept. 20 that the company would raise its dividend 10% for the Dec. 8 payment date. This is near the CAGR of 11.8% over the last decade and gives the company 21 consecutive years of dividend growth. The stock yields 1.1%, which is just under the five-year average yield of 1.3%.
Microsoft is in the midst of a year-long selloff, dropping close to 29% over the past year. One positive from this decline is that the stock is now comfortably below its intrinsic value according to the GF Value chart.
With a recent price of $237.92 and a GF Value of $309.71, Microsoft has a price-to-GF-Value ratio of 0.77. This means shares have the potential to return more than 30% from current levels.
Microsoft’s GF Score is also a very strong 99 out of 100.
Microsoft has at least an 8 out of 10 in every category used to assign a GF Score, including a perfect 10 out of 10 for growth and profitability. The company has been near the top of its industry for revenue and earnings growth over the medium-term and is projected to see low double-digit growth in both areas over the next three to five according to estimates from Morningstar (MORN, Financial) analysts.
Along with a decade of profitability, Microsoft’s margins, return on assets and return on equity not only best the majority of the competition, they are also among the company’s best showings in the last 10 years. Microsoft is one of the best companies at generating returns off of its invested capital as the ROIC of 30.7% is well ahead of its WACC of 6.4%.
The last name that recently raised its payment to shareholders is Texas Instruments (TXN, Financial), a leading manufacturer of semiconductors and related products. The $149 billion company had revenue of close to $20 billion over the last year.
Texas Instruments’ most recent dividend announcement occurred on Sept. 15, where the company declared that it was raising its payment 7.8% for the Nov. 15 payment date. This is well below the CAGR of 21.7% that shareholders have been accustomed to over the last 10 years. Still, Texas Instruments’ dividend growth streak now stands at 19 years.
The stock is yielding 3.1%, above its five-year average yield of 2.6% and nearly twice what the S&P 500 Index is offering.
The falloff in the stock price is more muted with Texas Instruments as it has declined just over15% year-to-date, but it still trades at a discount to its GF Value of $198.53.
With shares trading hands at $162.82, Texas Instruments has a price-to-GF-Value ratio of 0.82. Investors buying at this price could see a return of 22% before even factoring in the dividend yield if the stock were to reach its GF Value.
Texas Instruments’ GF Score is very high as well at 96 out of 100.
The company ranks well in all five areas of the GF Score, led by a perfect 10 out of 10 for profitability. Texas Instruments scores in at least the low 90% range of all of its peers on every metric within this category, led by a very high operating margin and net margin. In addition, each recent score is at or close to the best performance of the last 10 years for the company.
Texas Instruments has an even more impressive ability to turn invested capital into returns then the two other tech names discussed in this article. The company’s ROIC of 66.9% greatly overshadows its WACC of 6.8%.
Investors looking to identify names that can be used to create a growing income stream should pay attention to dividend announcements. Accenture, Microsoft and Texas Instruments are three large technology names that recently announced dividend increases.
Raises for Accenture and Microsoft were close to or exceeded the long-term historical averages, while Texas Instruments’ increase was below what it normally has announced. All three names offer good value based on the GF Value chart following declines for the year, with upside potential in at least the low 20% range for each. Thus, investors looking for a combination of income and growth in technology might find these three stocks appealing.