Is TI the New Model for Mature Tech Companies?

Amid the hoopla of the Dell buyout and the ensuing shareholder push back, the stock price of another Texas tech giant reached a 52 week high. In a press release last Thursday and a subsequent conference call on Friday, Texas Instrument outlined its new capital allocation strategy.

DALLAS, Feb. 21, 2013 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today said it will increase its quarterly dividend by 33 percent, from $0.21 per share to $0.28, payable May 20, 2013, to shareholders of record on April 30, 2013. Annualized, the new dividend will be $1.12. Additionally, TI authorized the repurchase of an additional $5 billion of its common stock bringing the total outstanding authorization to $8.4 billion.

These increases reflect the company's ability to generate cash and management's commitment to return it to shareholders. Over the past few years, TI has built a business model for growth and high margins with its focus on Analog and Embedded Processing semiconductors. As a result, TI believes it can consistently convert 20-25 percent of its revenue into free cash flow* and return 100 percent of that free cash flow (less debt repayment) to shareholders.

Much of mature tech giants today including Microsoft, Intel and Cisco are generating copious amount of free cash flow and seeing their cash holdings increase each quarter. Should these companies choose the lead of Texas instrument and pay out substantially all free cash flow, none will ever complain about an under-valued stock. Investors can only hope that TI is the new model.