The advent of fifth-generation (5G) wireless technology is turning out to be a boon for chipmakers. Semiconductor stocks have been flying high in recent months after a terrible performance last year, and this is just the beginning as we come to the beginning of the 5G deployment cycle. In fact, market-intelligence firm IDC estimates that spending on 5G infrastructure will jump to $26 billion in 2022 from $528 million last year.
The likes of…
Skyworks Solutions (NASDAQ:SWKS) and Xilinx (NASDAQ:XLNX) stand to gain big from this massive opportunity and potentially deliver a nice upside to investors in the long run. But the cherry on top is that both chipmakers also pay a dividend, which might increase as the 5G catalyst gains traction.
Skyworks will have more ground to raise its dividend
Skyworks made a surprising move to increase its dividend in August last year, at a time when its crucial mobile business was on the ropes. The company’s top- and bottom-line growth had dried up, and there wasn’t much hope for a turnaround.
The good news is that Skyworks’ 1.7% dividend yield is in the safe territory despite its weak results. Its revenue dropped 11% year over year last quarter, while net income shrank nearly 22% to $214 million, or $1.23 per share. For comparison, Skyworks paid a total of $66 million in dividends during the quarter at $0.38 per share. That means Skyworks paid out nearly 31% of its earnings in the form of dividends.
In the prior-year period, Skyworks had generated $276 million in net income ($1.50 per share) and paid $58.4 million ($0.32 per share) in dividends, translating into a payout ratio of just over 21%. So the chipmaker’s dividend payout ratio has shot up considerably of late, though it is still in safe territory. And it could go higher as earnings are expected to take a hit this fiscal year, according to Yahoo! Finance analysts.
But those analysts also forecast a double-digit increase in Skyworks’ earnings next fiscal year, so Skyworks’ dividend payout ratio could fall. This will also pave the way for further dividend increases as Skyworks stands to win on multiple fronts from the 5G revolution.
For instance, demand for the company’s smartphone chips will start picking up the pace as new 5G devices hit the market. At the same time, demand for Skyworks’ small cell solutions will also get a shot in the arm. Small cells will play a crucial role in the deployment of 5G networks as they enable high-speed connectivity across a wider area by decongesting the network.
The good news is that…
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