Microchip Technology Inc: A Dividend Idea In The Semiconductor Space

Microchip Technology Inc: A Dividend Idea In The Semiconductor Space

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We continue to look for high quality dividend growth ideas in a low interest rate environment. Today we will analyze Microchip Technology (MCHP) and determine if this is a quality dividend idea for your portfolio. Microchip is expected to report third quarter earnings on November 11th,2012.

A Quick Look At Microchip Technology Stock:

The stock trades at around $32, versus its 52-week range of $30.23-$38.87. It trades at a P/E multiple of 15.7 times and a forward P/E of 13 times. The stock yields 4.4%. Others stocks in its peer group such as Linear Technology (LLTC) yields 3%, Intel (INTC) yields 4%, and Analog Devices (ADI) yields 3.2%.

Fundamentals That Support a Strong Dividend Growth Story

1. Microchip has a strong balance sheet with $780 million in cash and cash equivalents, and long-term debt of $357 million in the form of JuniorConvertibles due 2037. Additionally, the company has a $750 million credit facility, which remains unused as of June 30th, 2012.

2. As per management, the SMSC integration is expected to accrete$0.32 in 2013. The synergies are expected to have a positive impact on top line growth.

3. The company’s 16-bit and 32-bit businesses have shown qtr/qtr growth, positioning itself to capture market share

4. Microchip has continued to grow its dividend per share through the years with a current payout of 35.1 cents

5. Microchip has a history of generating strong cash flow. During the announcement of Q1-2013 results, management stated that net cash generation during the September quarter will be approximately $100million prior to dividends and acquisition activities.

We conclude by saying that Microchip Technology has several long-term positive catalysts, which support a dividend growth story. Additionally, a strong balance sheet, and cash flow generation provide a floor for the stock. The risk in investing in Microchip remains acquisition integration issues, continued macro weakness, and loss of market share.

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5 Responses to “Microchip Technology Inc: A Dividend Idea In The Semiconductor Space”

  1. Microchip has a history of generating strong cash flow. During the announcement of Q1-2013 results, management stated that net cash generation during the September quarter will be approximately $100million prior to dividends and acquisition activities.

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