Maxim's chart shows a possible base-on-base pattern. The pattern is 11% deep and could offer a buy point at 42.47.
The chip sector is cyclical, which can complicate decisions for the dividend investor. Should the dividend investor ride out the down cycles, collecting dividends along the way? Or should the investor time the cycle?
The first strategy involves risks, especially if the investor is holding individual stocks. Intel (INTC), the biggest and best known dividend-paying chip stock, corrected 84% from an August 2000 peak to a February 2009 low. The stock has had its ups and down since then but it has never recovered that 2000 high. Intel has spent most of the past 16 years trading at less than half the 2000 high. Less than half. Anybody up for buy and hold?
For market timers, the big question is this: Where are chips in the cycle?
No one can answer that question with complete confidence, except in hindsight. Yet, earnings and earnings estimates can give the individual investor a rough gauge.
(Industry data also can be useful in sketching the overall picture. On Sept. 6, the Semiconductor Industry Association noted that worldwide sales increased about 3% in July. The increase marked the biggest month-to-month sales increase since September 2013.)
Of the 21 chipmaker stocks trading above 15 a share, how many increased earnings growth last year? Only seven. How many are expected to step up earnings growth in the full current year? Twelve. How many are expected to step up the earnings growth rate next year? Fifteen.
There's nothing here that would scare off investors (though a recession is always the wild card that can change everything in a hurry).
So, let's look at the dividend-paying chip stocks assuming that blue skies are in the forecast.
Chipmaker stocks are almost evenly divided between dividend-paying stocks and those that don't pay a dividend. Among the 16 stocks in IBD's Dividend Leaders screen, two are from the chip camp.
Qualcomm (QCOM), which is in the chip designer industry group, is about 25% off its July 2014 high. The chart shows a long, deep correction from July 2014 to February 2016. The big-cap company is expected to see earnings drop 8% vs. the year ago in fiscal 2016. The fiscal year ends this month. The long correction combined with weak earnings do not make for an attractive package.
Maxim Integrated Products (MXIM), which is in the chipmaker group, looks better than Qualcomm chartwise and on some key fundamentals.
Earnings growth in fiscal 2017 ended in June is expected to check in at 20% growth, up from last fiscal year's 7% growth. Revenue is pegged at 3%, the first increase in three years and the best result in six years.
Pretax margin was 26.2% last year, up from the previous year's 23.4%. Return on equity, a gauge of financial efficiency, was 21.4% last year, up from 18.7%.
The annualized dividend yield is 3.5%. The dividend growth rate is 8%, which is good enough to double the payout in nine years.
Maxim's chart shows a possible base-on-base pattern. The pattern is 11% deep and could offer a buy point at 42.47.
With the market uptrend under pressure, this is not an ideal time to be buying stocks. If the uptrend should regain its upward drive, then Maxim might look more attractive. The stock lost its 50-day line among the market's recent trouble. If the line is retaken in strong volume, aggressive investors might see that as an alternative entry.
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