Analog Devices is the only chipmaker to make it into the Best Dividend Stocks for Long-Term Investment list.
Let’s dig into whether this company is worth investing in.
- 23.6% yearly EPS growth estimate over the next five years (9.9% median expected average for S&P 500 stocks)
- Annualized return over last 10 years: 21.8% (11.1% for S&P 500)
- 13% yearly EPS growth over the last five years (8.3% for S&P 500)
Basically, this company is growing earnings faster than most S&P 500 stocks, and the stock returns reflect that by outperforming over the last five and 10 years.
All data from StockRover, which also computes a Fair Value (based on discounted cash flows) of $457.58 for the stock, which currently trades near $375.
Among US companies, it ranks in the top few percentiles for earnings and revenue growth and is also ranked high for quality (based on financial ratios).
The sentiment rank is currently fairly low, as the stock has recently fallen about 15% from its all-time high at $445.91. It had fallen as much as 21% but has recovered slightly.
ADI Decline and Rally Percentages
Over the last 8 years, buying on declines of roughly 15% to 20% has provided good entry points. While occasionally there have been declines of more than 30%, generally the stock has seen significant bounces after an approximate 20% decline.
Chart from TradingView (use like to save $15 on packages)
Rallies following declines—similar to the current one—aren’t always a straight shot higher. The stock can chop around, sometimes for years, rallying 20% to 50% with 15% or greater declines in between.
The biggest rallies over the last decade have followed declines of more than 25%.
While profit targets could be used, there is also the option to exit based on the factors discussed in this article. If the company is continuing to perform well, over time the stock price will likely reflect that. If the company stumbles, or fails to grow, it may be time to move on to other opportunities.
ADI Dividends
ADI has steadily increased its dividends, and those dividends provide some cash flow when the stock isn’t moving higher.
According to StockRover, ADI has increased its dividend amount by 10.1% per year over the last decade. While the yield is only 1.2%, keep in mind that the yield is low because the stock has increased nearly 22% per year, while the dividend increases at 10%.
In simple terms, not only has the stock been producing good returns over the long run, but the cash flow (via dividends) from owning the stock has been doubling about every seven years.
ADI Seasonality
According to StockRover, since 2007, August, September, and October have not been great months for ADI. September tends to be one of the weakest months for the major indices.
Longer-term investors can potentially benefit by buying ADI in weaker months. As mentioned, the stock has been down 15% to 20% over the last couple of months.
Historically, by late October and into November, the stock begins to produce positive monthly returns.
ADI Valuation
ADI has a P/E of 44.5 according to StockRover, which is higher than the S&P 500 average and industry average. Yet, as discussed, the company also has higher growth than most companies, which typically means people are willing to pay a higher multiple to own that stock.
The significant growth expected also makes the Forward P/E quite a bit lower, and potentially a value for the growth prospects of the company.
The following additional valuation metrics show the stock is trading at elevated levels compared to historic levels.
ADI Investment Outlook Final Word
ADI has a long history of increasing earnings, which helped the stock significantly outperform the S&P 500 over the long run.
While the dividend yield isn’t high, the company has steadily increased the dividend amount, which is favorable for investors looking for a balance of increasing dividend cash flow over time, with the potential for above-average returns as well (if the company continues to perform well).
It is a seasonally weak time for the stock market and ADI, indicating that September or October would be a more favorable time to buy. Declines of 15% or greater have historically been good buy points. Large rallies have tended to follow larger declines of 30% or more.
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Disclaimer: This is not a recommendation to buy or sell. How the company will perform in the future is unknown. Data provided is based on available data at the time of writing. The stock continuing to perform well is dependent on the company continuing to increase earnings and revenue over time.
Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage. Affiliate links are used on the site: If you purchase a product via one of these links, this site may be compensated at no cost to you. Thank you for supporting the site in this way. Past results/performance isn’t always indicative of future results/performance.
