Analysts expect the global semiconductor shortage to persist in 2022 due to increased demand for electronics, electric vehicles (EVs), and other products that require semiconductor chips to operate. However, the CEO of Mubadala, Abu Dhabi’s state investment fund and a major shareholder in chipmaker GlobalFoundries, believes the semiconductor industry is on track to record exponential growth over the next decade. He added that chipmakers are poised to play a “crucial” role in the global economy.
Rising demand from several industries, including consumer electronics and electric vehicles (EVs), and the Biden administration’s pressure on Congress to pass a $52 billion spending bill before Christmas to tackle the crisis should drive the semiconductor industry’s growth. The global semiconductor chip market is expected to reach $553.6 billion by 2026, registering a 7.8% CAGR.
Given this backdrop, along with rising inflation and expected market volatility due to the effects of the COVID-19 omicron variant, we think it could be wise to bet on dividend-paying chip stocks Broadcom Inc. (AVGO), Intel Corporation (INTC), and United Microelectronics Corporation (UMC). This is because dividend-paying stocks can reduce overall portfolio risk. Also, these stocks are rated Strong Buy in our proprietary POWR Ratings system.
Click here to checkout our Semiconductor Industry Report for 2021
Broadcom Inc. (AVGO)
Incorporated in 2008, San Jose, Calif-based AVGO is a global technology company that focuses on semiconductor and infrastructure software solutions. The company combines global scale, engineering depth, broad product portfolio diversity, superior execution, and operational focus to deliver category-leading semiconductor and infrastructure software solutions.
On December 09, the company approved a $4.10 quarterly dividend, payable on December 31, 2021. The company’s $16.4 annual dividend yields 2.6% at its current stock price. Its dividend has grown 49.3% over the past five years.
This month, AVGO acquired AppNeta Inc., a SaaS-based network performance monitoring solution provider. Through this acquisition, AppNeta should add Digital Experience Management (DEM) capabilities to AVGO’s DX NetOps network monitoring solutions.
AVGO's net revenue for its fiscal fourth quarter, ended October 31, 2021, increased 14.5% year-over-year to $7.41 billion. The company's net income grew 22.2% from its year-ago value to $3.5 billion. Its EPS rose 23% from the prior-year quarter to $7.81. Also, the company's cash flow increased 5.8% from the year-ago value to $3.54 billion.
Analysts expect AVGO's revenue for its fiscal year 2022 to be $30.42 billion, representing 10.8% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is expected to grow 16.1% in the current year. Its stock price has increased 44.4% over the past nine months and 54.1% over the past year.
AVGO's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Momentum and a B grade for Quality and Growth. We have also graded AVGO for Sentiment, Value, and Stability. Click here to access all AVGO's ratings. AVGO is ranked #1 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.
Note that AVGO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Intel Corporation (INTC)
INTC is a global manufacturer and designer of technologies for the cloud, smart, and connected devices for retail, industrial, and consumer uses. The Santa Clara, Calif., company operates through DCG; IOTG; Mobileye; NSG; PSG; CCG, and All Other segments. Accelerators, Connectivity, Memory and Storage, Platform products, and Boards and Systems are some of INTC's products.
INTC paid a $0.35 quarterly dividend on December 1, 2021. The stock distributes a $1.39 per share dividend annually, translating to a 2.75% yield. The company’s dividend has grown at a 6% rate over the past five years.
INTC’s labs launched the Intel Research Center for Integrated Photonics for Data Center Interconnects this month. The research center should collaborate with some top scientific minds across the U.S. to accelerate the advancement of integrated photonics for the next generation of computing interconnects.
During the third quarter, ended September 25, 2021, INTC's net revenue increased 4.6% year-over-year to $18.1 billion. The company's gross margin grew 10.3% from its year-ago value to $10.75 billion. Its operating income rose 3.3% from the prior-year quarter to $5.23 billion. Also, the company's net income increased 55.6% year-over-year to $7 billion.
INTC has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is expected to increase 3.2% per annum in the next five years. Moreover, the stock has gained 2% in price year-to-date.
INTC's POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Value and Momentum and a B grade for Quality.
In addition to the POWR Rating grades I have just highlighted, one can see INTC's ratings for Stability, Sentiment, and Growth here. INTC is ranked #12 in the Semiconductor & Wireless Chip industry.
United Microelectronics Corporation (UMC)
UMC is a Hsinchu City, Taiwan-based semiconductor company. The company provides high-quality IC fabrication services, focusing on logic and various specialty technologies to serve major electronics industry sectors. Its comprehensive IC processing technologies and manufacturing solutions include Logic/Mixed-Signal, embedded High-Voltage, embedded Non-Volatile-Memory, RFSOI, BCD, etc.
UMC paid a $0.29 quarterly dividend on August 20, 2021. The stock distributes a $0.29 per share dividend annually, translating to a 2.53% yield. The company’s dividend has grown by 26% over the past five years.
This month, UMC expanded its business relationship with Micron Technology, Inc. (MU), which should provide UMC with opportunities to secure supply for automotive. Also, together both companies should be able to address the current challenges that the customers face.
UMC’s operating revenues increased 24.6% year-over-year to NT$55.91 billion ($2.02 billion) for the third quarter, ended September 30, 2021. The company’s gross profit grew 110.3% from its year-ago value to NT$20.54 billion ($742.62 million). Its operating income rose 112.2% from the prior-year quarter to NT$15.14 billion ($547.1 million). Also, the company’s EPS increased 90.7% year-over-year to NT$1.43 ($0.05).
For its fiscal year 2022, analysts expect UMC’s revenue to increase 42.3% year-over-year to $10.8 billion. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is estimated to increase 88.1% in the current year. The stock has gained 35.9% in price over the past nine months.
It is no surprise that UMC has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Momentum and a B grade for Value and Quality.
Click here to see the additional POWR Ratings for UMC (Growth, Sentiment, and Stability). In the Semiconductor & Wireless Chip industry, it is ranked #5.
Click here to checkout our Semiconductor Industry Report for 2021
AVGO shares were trading at $623.97 per share on Monday morning, down $7.71 (-1.22%). Year-to-date, AVGO has gained 45.81%, versus a 26.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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