KLA-Tencor (KLAC); Hikes dividend by 4% & trades at trough valuations.

klac

KLA-Tencor’s (NYSE: KLAC) dividend was increased by 4% with an overall yield above that of the S&P 500 Index at 2.90%. KLA-Tencor is the world’s leading supplier of yield management systems for the semiconductor industry.  The California based firm serves the semiconductor and LED industries.

KLA-Tencor was established in 1997 following the merger of KLA Instruments and Tencor Instruments. KLA-Tencor has paid dividends on a consecutive basis for 11 years. KLA-Tencor currently ranks 22nd in yield within the large cap technology category. KLA-Tencor also released Q1 2017 earnings per share of $1.16 a share two weeks ago. This was up from $0.71 per share in last year’s Q1.  This topped analyst estimates as measured by Thomson Reuters by $0.13 cents a share. The technology firm also released revenue data, taking in $751 million.  This strong revenue number was 16.5% higher than last year’s (Q1 2-016) result.

As for guidance, KLA’s management team indicated that for Q2 2017 revenue should approach a midpoint of $835 million, although the range on either side was $30 million.  Earnings per share are targeted at $1.38, plus of minus $0.10 cents. Both are well ahead of consensus estimates for $772 million in revenue and $1.18 in earnings. KLA also operates a solid balance sheet with $2.5 billion in cash and maintains an investment grade rating of BBB.

KLA-Tencor has maintained a solid three-year growth rate of dividends of 9.6 percent. The quarterly dividend for the December payment will be $0.54 versus the prior year rate of $0.52 per share.  KLA-Tencor Corp. does qualify as a new member of our Top 100 Dividend Stocks (see below).

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The dividend will be paid at the new higher rate on December 1, 2016, to shareholders of record at close of business on November 15, 2016. KLA-Tencor is currently priced at $74.52. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/15/2016 0.54
8/11/2016 0.52
5/12/2016 0.52
2/11/2016 0.52
11/12/2015 0.52
8/13/2015 0.52
5/14/2015 0.5
2/12/2015 0.5
11/26/2014 16.5
11/13/2014 0.5
8/14/2014 0.5
5/15/2014 0.45
2/13/2014 0.45
11/14/2013 0.45
8/14/2013 0.45
5/9/2013 0.4
2/14/2013 0.4
11/15/2012 0.4
8/9/2012 0.4
5/10/2012 0.35
2/16/2012 0.35
11/9/2011 0.35
8/11/2011 0.35
5/12/2011 0.25
2/17/2011 0.25
11/10/2010 0.25
8/12/2010 0.25
5/13/2010 0.15
2/11/2010 0.15

Analysis of KLA-Tencor Corp. is based upon our five key criteria, which include; 

Category Value Score
Dividend Yield 2.90% 157
Dividend Growth (3-6 year avg) 17.3% 109
Forward P/E 13.11  74
S&P Financial Rating BBB  160
Beta 1.15 175
Total Score    675

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
2.90% 9.6% 24.95% 19.14 3.89 1.42 8.26 2.29% 4.36%

Final Analysis;   

Positives;

  • KLA-Tencor’s dividend yield is above that of the S&P 500 Index.
  • KLA-Tencor maintains a 3 year dividend growth rate of 9.6%.
  • KLA-Tencor maintains a credit rating of BBB. This is investment grade.
  • KLA-Tencor’s forward P/E ratio is just over 13, below that of the market.
  • KLA-Tencor is trading at a lower than average price/sales (P/S) basis.
  • KLA-Tencor has paid out a dividend consecutively for the past 11 years.
  • KLA-Tencor’s dividend payout ratio is a low 41.94%.

Negatives;

  • KLA-Tencor’s current dividend yield (2.90%) is below it’s five-year average historical dividend yield of 3.32% and well below the max of 4.36%.
  • KLA-Tencor maintains a beta of 1.15, higher than the average company.

KLA-Tencor has a competitive advantage within the semiconductor process diagnostic and control segment with over a 50% market share. It recently attempted to build upon its edge by being acquired by Lam Research. However, the proposed acquisition of KLA-Tencor as dropped following antitrust objections from the Justice Department.

The merger merits were simple, Lam Research is weak in foundry and logic, which are areas of KLA’s strength.  Foundry has been the issue for KLAC for the past few years as orders have stagnated primarily due to oversupply and a slowdown in smartphone sales. But this past year, foundry income has grown by double digits. KLA is the top seller in its product category and maintains margins well above its peers.  KLA is not as popular with analysts as other semiconductor firms as 1 firm has a “sell” rating, 8 give the stock a “hold” rating, while 6 have offered a “buy” opinion.

But in our opinion, the advantages outweigh the risks.  This includes the firm’s double-digit yearly dividend increases since 2010, low forward P/E, high credit rating, and a near 3% yield. KLA-Tencor is a member of our  Top 100 Dividend Stocks list. If you want to find out if a stock is in our model portfolio please subscribe to our monthly newsletter.  

KLA-Tencor Corp. Dividend Yield Chart (Click to enlarge)

klac3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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