Texas Instruments' $5.8 billion payout needed $1.2 billion of CHIPS Act cash

The 23rd increase is still a plan

On September 17 Texas Instruments said it will raise its quarterly dividend 7 percent, from $1.42 to $1.52, payable November 10 to holders of record October 30↗ ¹. The same sentence carries the condition: the increase is contingent on formal declaration by the board at its regular October meeting ¹. The headline banked the result anyway, "marking 23 consecutive years of increases↗," and the last dividend the board actually declared, on July 16, was still $1.42 ³. Chief executive Haviv Ilan ties the raise to returning all free cash flow to owners over time ¹.

Free cash flow, with a government line item

The cash underneath that pledge deserves the same scrutiny. TI defines free cash flow as cash from operations, less capital expenditures, plus proceeds from CHIPS Act incentives↗ ². For the twelve months to June 30 that reads $8,667 million of operations, minus $3,312 million of capex, plus $1,179 million of grants, for $6,534 million ². Strip the grants and $5,355 million remains, against $5,819 million returned to owners: $5,112 million of dividends and $707 million of buybacks ². Dividends alone took 78 percent of the reported figure and roughly 95 percent of the stripped one.

The June quarter makes the definition vivid. TI collected $549 million of CHIPS proceeds against $514 million of capex, so reported free cash flow of $2,738 million came in above operating cash flow itself, and a footnote adds $433 million of CHIPS tax-credit benefit already inside the operating figure for the year ². A year earlier the gap was wider, $1,763 million of free cash flow against $6,710 million returned, and the buyback has since been cut to $27 million a quarter ².

Dividend funds are underwriting the reported number

The stock carries a Buy rating at 30.99 times forward earnings against a 19.04 industry average, resting on that $6.53 billion figure and the streak ⁴. The trailing multiple is 44.4 against 21.5 for the S&P 500, and the shares are up 66.6 percent in a year ⁴⁵. Schwab's $109 billion U.S. Dividend Equity ETF now holds Texas Instruments as its largest position, 4.94 percent of assets↗, about $5.4 billion ⁶.

The bull case: volume, price, cheaper fabs

The offset is real. Second-quarter revenue rose 23 percent to $5.46 billion with data-center revenue doubling, and the third-quarter guide runs to $6.15 billion of revenue and $2.57 of earnings per share at the top ²⁵. Price increases have started, almost none inside that guide, with more expected in the fourth quarter, while capex falls from $4.94 billion to $3.31 billion trailing, toward $2 billion to $3 billion this year ⁵⁷. Another $1.6 billion of grants and $6 billion to $8 billion of tax credits are still expected ⁴. Buyers already smell the risk: the stock has added only 0.8 percent since the July 22 report, against 3.5 percent for the S&P 500 ⁵.

What October settles

The month settles this twice. The board votes on the $1.52 before the October 30 record date, and the October 21 results will show whether fourth-quarter prices stick ³. The tell is a definition: as long as free cash flow needs the government line, part of the free in TI's free cash flow is a check from Washington.