Dividend War Comes to the Chip Sector (AMAT, INTC, XLNX, ALTR, TXN, QCOM, BRCM, MRVL, AMD, MU, KLAC)

Applied Materials Inc. (NASDAQ: AMAT) is off its highs but still higher on the day after the company raised its dividend and announced a share buyback plan.  The company’s board of directors boosted the quarterly dividend from $0.06 to $0.07 and authorized a share buyback plan of up to $2 billion over the next 3-year period.  What is more important than just a buyback and dividend raise is what it does for the semiconductor sector.  The chip sector is very divided as you have circuits, communications, PCs, and the cap-ex side of the equation.  And more.

Today’s news on top of other recent dividend hikes and share buyback hikes is only going to add more pressure for other chip stocks to increase their dividend payments and perhaps to keep buying back stock.  Here we are looking at Intel Corporation (NASDAQ: INTC), Xilinx Inc. (NASDAQ: XLNX), Altera Corporation (NASDAQ: ALTR), Texas Instruments Inc. (NYSE: TXN), QUALCOMM Inc. (NASDAQ: QCOM), Broadcom Corporation (NASDAQ: BRCM), Marvell Technology Group Ltd. (NASDAQ: MRVL), Advanced Micro Devices Inc. (NYSE: AMD), Micron Technology Inc. (NYSE: MU), and KLA-Tencor Corporation (NASDAQ: KLAC).  We wanted to compare dividend yields, some brief history, and a potential of whether other dividend hikes will be coming down the road in the various aspects of semiconductors.

Applied Materials at the new dividend rate will yield about 2.25%.  As far as how this compares to other chip leaders, Intel Corporation (NASDAQ: INTC) already yields 3% today after it already raised its dividend earlier this year from $0.14 to $0.158 per quarter.

Then there is Xilinx Inc. (NASDAQ: XLNX), which also pays a 2.4% dividend now that it hiked its dividend from $0.14 to $0.16 in late-2009.  Xilinx has been a higher paying company in the sector for some time.  The other circuit and PLD player that gets grouped with Xilinx is Altera Corporation (NASDAQ: ALTR).  As far as which company has a higher yield, it is not even close.  Altera has a payout of only 0.85% for its dividend yield and it has been far less aggressive in payments to shareholders.

The big trade out there had been in Texas Instruments Inc. (NYSE: TXN).  That company was buying back more stock than almost any chip company for years.  It also raised its dividend in 2009 and the yield there is now 1.9%.  Interestingly enough, QUALCOMM Inc.  (NASDAQ: QCOM) just saw about a 10% recovery after the company raised its dividend and its buyback plan.  It had been in a steady slide lower after average selling prices were heading south ahead.

Broadcom Corporation (NASDAQ: BRCM) only recently embarked upon a dividend paying strategy.  At $0.08 in payments per share per quarter, the yield here is only about 1%.  That comes to $0.32 per year, yet the Thomson Reuters estimates are $1.97 EPS for 2010.  This is just the first of its dividends, assuming the earnings come in close  to estimates, with more than enough dividend coverage for Broadcom to hike its payout.

Of the big communications chip makers and designers, Marvell Technology Group Ltd. (NASDAQ: MRVL) is without a dividend.  Its earnings estimates ahead from Thomson Reuters are $1.50 EPS and $1.66 EPS for the next two years.  It seems that a dividend policy could be coming down the road.  Maybe, maybe not.

Advanced Micro Devices Inc. (NYSE: AMD) and Micron Technology Inc. (NYSE: MU) are still likely farther away than closer to setting quarterly payouts.  Both companies have been in a turnaround mode for years and it is more than understandable that these need to hold on to their cash.  Micron is in a merger, and AMD is… well they are AMD.  It is far too soon to start speculating about or demanding dividends from these two.

Without trying to get too broad, Applied Materials is on the cap-ex side of the semiconductor sector.  On that front KLA-Tencor Corporation (NASDAQ: KLAC) is considered the number two player behind it and KLA has had the same $0.15 dividend since Q3-2007.  So that comes to $0.60 in annual payouts for a 2% dividend yield, but its Thomson Reuters earnings estimates are $1.22 EPS this year (June-end) and $2.24 EPS next year.  Expecting a huge payout boost here may be premature considering that business on the cap-ex side of the chip sector is nowhere near as strong as what we have seen in other aspects of the chip recovery.

These are only some of the major semiconductor and semiconductor equipment players out there.  There are dozens of others which could be named.  The semiconductor recovery is happening and we are seeing selective dividend payment boosts.  An issue to consider is whether the economic recovery holds up or whether it falters if the 2011 tax and spending situation become more finite.

It seems that more dividend hikes (and possibly share buybacks) will come.  But the sector is still in many cases short of its former glory and this week just a year ago was when the investing public was caught somewhere between looking like a deer in the headlights and wanting to jump off a cliff.

JON C. OGG