Avago Technologies Limited (AVGO), a leading semiconductor manufacturer, recently announced a 10.3% year-over-year hike in its interim quarterly dividend payout to 32 cents per share or $1.28 on an annualized basis. The fourth-quarter fiscal 2014 dividend is payable in cash on Sep 30 to shareholders of record as of Sep 19.
Avago has continuously increased the quarterly dividend since its inception. Based on the closing price of $86.09 on Sep 4, 2014, the proposed dividend offers a yield of 1.5%. Steady dividend payout is part of the long-term strategy of Avago to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of the company’s most attractive features.
The current dividend increase is the third of its kind in 2014. Avago had earlier raised the quarterly dividend payout from 25 cents to 27 cents in March and from 27 cents to 29 cents in June. In the last one-year period, share prices of the company have more than doubled for a stellar return of 121.9%. This signifies a strong investor confidence on the stock, catapulting the share prices to historic highs.
The dividend increase comes close on the heels of strong third-quarter fiscal 2014 results, wherein Avago reported substantial year-over-year improvements in revenue and recurring earnings on the back of the accretive LSI Corporation acquisition. Net revenue (non-GAAP) almost doubled to $1,287 million from $644 million in the year-earlier quarter. Non-GAAP earnings improved to $347 million or $1.26 per share from $188 million or 74 cents per share in the year-ago quarter.
Avago also has a solid liquidity position. The company generated $314 million in cash from operations in the reported quarter compared with $137 million in the prior-year period. At quarter end, Avago had $1,277 million in cash and cash equivalents, which was significantly higher than the fiscal-end 2013 tally of $985 million.
Moving forward, Avago is further expected to benefit from the recent acquisition of PLX Technology Inc. The strategic purchase complements Avago's existing server storage connectivity and networking ASIC (application-specific integrated circuit) products that serve the enterprise and data center market.
The core PLX Technology business is deemed to be a strategic fit for Avago, further adding a new dimension to next generation data center architectures. In addition to cost synergies from a combined resource pool as the cost of designing and building semiconductors rises, the acquisition is likely to improve the operating margin of the combined company, creating greater scale to further drive innovation into the datacenter. The acquisition is expected to be immediately accretive to Avago’s non-GAAP earnings.
Avago presently has a Zacks Rank #1 (Strong Buy). Other stocks that are worth considering in the industry include Advanced Semiconductor Engineering Inc. (ASX), Anadigics, Inc. (ANAD) and Amkor Technology, Inc. (AMKR), each carrying a Zack Rank #2 (Buy).
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