To The Moon

$Texas Instruments(TXN)$

A Dividend Classic in a New Macro World

Texas Instruments has long been considered a dependable stalwart in the semiconductor space — a "sleep-well-at-night" stock known for steady dividends, strong cash flows, and conservative capital management. For many income-focused investors, TXN is a permanent fixture in portfolios, almost like a bond proxy in equity form.

But the investing environment has changed — dramatically.

We’ve exited the era of zero interest rates. Inflation has resurfaced in a material way. The cost of capital is now real again. And in this new world, certain businesses and stocks that looked attractive under old assumptions suddenly appear richly valued and poorly positioned for future returns.

TXN, in our view, is now one of them.

This is not a bearish attack on the company itself — it remains a financially sound and operationally disciplined firm. But as a stock, Texas Instruments now represents a classic case of "great business, poor price." It illustrates how valuation, earnings cyclicality, and investor inertia can combine to create long stretches of subpar returns — even when the underlying company continues to do many things right.

How Texas Instruments Became a Dividend Favorite

To understand TXN's current valuation disconnect, we need to revisit how it became such a staple of conservative dividend portfolios.

For years, TXN fit perfectly into the macro backdrop:

• During the zero-interest-rate era (ZIRP) from 2009–2021, fixed income yields were too low to generate adequate retirement income. Many investors turned to blue-chip dividend payers instead — especially those with consistent payout histories.

• Texas Instruments stood out with a 20+ year track record of dividend increases, along with meaningful share buybacks.

• It generated high free cash flow margins, low leverage, and offered a relatively stable earnings stream compared to more volatile peers in the chip space.

In this environment, TXN felt like the best of both worlds — tech exposure, but with bond-like stability.

The result? A loyal base of buy-and-hold dividend investors piled in over the years and largely stayed put, even through periods of volatility.

But now that the interest rate regime has shifted, the rationale for this loyalty deserves a fresh look.

Why TXN’s Safety Comes at a Steep Cost Today

Let’s get specific about why TXN looks unattractive from a valuation perspective right now.

Fundamental Analysis: Still Strong

• Operating margins >40%

• Returns on invested capital (ROIC) consistently >25%

• Management is disciplined with capital allocation

• Low debt and minimal share dilution

These are all signs of a quality business. But in investing, even the best businesses can become bad investments if the price is wrong.

Valuation: Uncomfortably High

• P/E ratio is currently ~37x, significantly above its 10- and 20-year averages

• Free cash flow yield <3%, which is lower than current yields on 3-month and 1-year Treasuries

• PEG ratio >4, suggesting earnings growth doesn’t justify the price

TXN is priced as if it were a high-growth software company, not a mature analog semiconductor manufacturer.

Over the past 10 years, EPS growth has averaged ~8% annually — solid, but not extraordinary. In fact, over the past 4 years, growth has decelerated, and recent earnings declines (especially in 2023) underscore the cyclical nature of the industry.

TXN's Pandemic Boom and Post-Pandemic Reversal

TXN's earnings surged in the immediate aftermath of the COVID crash, thanks to a combination of:

• Supply chain bottlenecks

• Stimulus-fueled demand for electronics

• A global inventory restocking cycle

From 2020–2022, TXN posted the following EPS growth:

• 2020: +14%

• 2021: +38%

• 2022: +14%

But like many cyclical beneficiaries of the pandemic, this boom was followed by a bust. In 2023, earnings declined, and revenues began to decelerate in tandem.

This post-pandemic reversal — what some have called a “goods recession” — hit industrial and consumer electronics firms particularly hard. Unlike cloud or AI-focused chip firms, TXN sells analog and embedded chips into slower-moving, capital-heavy sectors like automotive, industrials, and consumer hardware.

TXN didn’t collapse like some of its more speculative peers, but that’s part of the issue. It also didn’t get cheap.

The Volatility Dilemma: A Safe Stock That Never Gets Undervalued

One of the most underappreciated problems with TXN is that it doesn’t fall enough.

During the 2022 tech selloff:

• TXN dropped ~30% from peak to trough

• AMD dropped ~65%

For investors who use volatility as a source of alpha — to buy great companies at bargain prices — TXN’s muted drawdowns represent missed opportunity. You don’t get the kind of fire-sale pricing that allows for strong forward returns. Instead, TXN always hovers near a premium valuation, supported by dividend investors who are unwilling to sell — regardless of valuation.

This creates a price floor... but also a return ceiling.

In contrast, stocks like AMD or Nvidia, which are often more volatile, can present 100%+ upside potential when bought near troughs. TXN simply doesn’t offer that kind of upside — even if you time it perfectly.

Dividend Yield Is No Longer Competitive

For years, TXN’s dividend seemed attractive relative to bonds.

• In 2016, you might have earned 2.5% yield from TXN while Treasuries paid sub-2%.

• Today, you can earn 5.4% on a 1-year Treasury bill, risk-free.

• Meanwhile, TXN’s dividend yield is 2.7%, with very little payout growth expected over the next couple of years.

This means new investors aren’t being compensated for the equity risk they’re taking — and older investors are now exposed to opportunity cost.

The S&P 500 Is Outperforming TXN

Let’s look at TXN’s total return versus the S&P 500 over the past 10 years:

• TXN (with dividends): ~130–140%

• S&P 500: ~177% over the same time

Despite its reputation as a solid performer, TXN has underperformed the index — and this includes a decade when the stock traded at premium multiples for most of the period.

This underperformance can’t be explained away by poor fundamentals. It stems directly from a combination of:

• High starting valuations

• Moderate growth

• A loyal investor base that suppresses volatility

• The absence of any material multiple compression

In other words, it’s hard to win when the market never gives you a discount to buy into.

A Smarter Strategy: Use TXN as a Defensive Source of Rotation

If you already own TXN and have a good cost basis, there’s no need to panic. But consider this:

During the next semiconductor or broader market correction, when TXN falls 20–25% and a more dynamic peer like AMD falls 60% or more, rotate.

Use TXN as your low-volatility, high-floor capital source to buy into higher-upside, higher-beta names when they're distressed.

This strategy allows you to:

• Capture volatility-based alpha

• Improve long-term total returns

• Keep your downside limited (since TXN never collapses)

It’s not that TXN is a bad business — it’s that it’s a bad springboard for future returns when bought at current levels.

Conclusion: A Cautionary Tale About Yield Chasing and Valuation Complacency

Texas Instruments offers a valuable investing lesson: quality is not enough.

Even companies with fantastic fundamentals can underperform when the market bids them up too far. TXN is a dividend aristocrat, a cash machine, and a reliable business — but right now, it’s priced like a high-growth disruptor, and that’s a problem.

Investors who anchor their decisions to yield alone — without considering valuation or macro conditions — risk locking in years of subpar performance. Meanwhile, others who remain flexible and embrace volatility can rotate into better opportunities as they arise.

TXN may still be a "hold" for some, but for new investors? It’s a hard pass until the valuation resets or the macro narrative changes.

Key Takeaways:

• TXN is a great company, but the stock is too expensive.

• Dividend yield is no longer attractive in today’s rate environment.

• Earnings growth does not justify the current valuation.

• Volatility is limited, which suppresses opportunities for entry.

• Better opportunities exist in more volatile semiconductor stocks when bought during corrections.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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