It is a good sign that Applied Materials is increasing their dividend 100%. AMAT has not increased their dividend for several years, so I'm happy about the increase.
For current buyers, it doesn't mean as much because the prior dividend yield at current prices was pretty small. But, here is where the beauty is in buying and holding. The yield the investor is getting is a function of THEIR purchase price. So, the lower your basis, the sweeter the increase is.
Much of chip making is outsourced now by chip designers because the capital cost are just so high. And, the equipment constantly has to be upgraded as chips get smaller and more complex. But, AMAT supplies the equipment to the chip makers to make chips! So, AMAT is a step removed.
Given the complexity of the chip making business and the specialization in designing the equipment that makes the chips, AMAT has a nice niche which I see as a durable competitive advantage. The capital costs to enter AMAT's market segment are huge.
The trends in AMAT's earnings and revenues have been really strong for several years now.
AMAT’s return on equity has been pretty strong over the last 10 years(41.5 in 2017) - only 2 years was it in the single digits and 1 year it was slightly negative( -4.2 in 2009). I always look at how a company did in recessionary years. That speaks to their management’s ability – what I call the special sauce!
Return on assets and net income are trending nicely as well.
One negative Item I see is that their debt level has been increasing (36.2 in 2017), but their cash covers their long term debt twice! With the market long-in-the-tooth, it is good to have that type of coverage.
Check AMAT out yourself. It is showing some strong signs of growth and profitability. With the trend in artificial intelligence growing at such a fast pace and the industry being in its infancy, the need to provide better and faster chip making equipment has space to grow.
While there will be downdrafts in the market price in the future, today I am saying "Hot Diggity Dog!"
