Does Micron's Dividend Increase Mean It's Time To Buy?
Micron is trading below key moving averages, and recently issued warnings about earnings. But it also boosted its dividend. Does that mean it's buyable now?
Memory-chip specialist Micron Technology (NASDAQ: MU) is up 4% since its June 30 earnings report. It rose as much at 18%, peaking at $65.42 in mid-August, but since sputtered, in tandem with the broad market.
Micron, as well as others in the memory-chip business, saw sharp sales growth in 2021, as consumers snapped up smartphones and other computer gear, and businesses invested in servers. However, in the past three quarters, revenue growth slowed from 37% to 16%.
That's still a healthy level, but ideally, you'd prefer to see growth or at least sales remaining fairly consistent.
Micro has two primary business lines: NAND and DRAM chips. NAND is typically used in storage devices including SD cards and USB drives.
DRAM chips are used in servers, personal computers and other gear. DRAM constituted the largest portion of Micron's revenue in the most recent quarter.
In terms of market share, Boise, Idaho-based Micron is the third largest memory-chip maker, after two Korean firms, Samsung and SK Hynix.
Long History Of Topping Views
MarketBeat earnings data show something that verges on incredible: Micron has topped earnings views in every single quarter since October 2015. However, in the most recent quarter, the company missed revenue expectations.
Earnings came in at $2.59 per share, up 38% from the year-ago quarter. Revenue of $8.64 billion was up 16%.
But remember: Markets look forward, not backward. A strong history of earnings and revenue growth can certainly indicate good management and solid demand for a company's products or services. But ultimately, investors are buying into future potential.
When the company reported, Micron issued disappointing guidance for the current quarter. It anticipates earning $1.63 per share on sales of $7.2 billion. Wall Street had been eyeing earnings of $2.60 per share, and sales of $9.15 billion.
Those are pretty steep differences on both the top and bottom lines.
At the time of the earnings release, Micron cited slower sales of computers and smartphones, higher-than-expected inventory of some products, and weakness in China.
Another Company With Supply-Chain Problems
More recently, the company lowered its near-term view, emphasizing "macroeconomic factors and supply chain constraints."
However, it's easy to see that any demand slump would be temporary. It's not exactly like chip makers or their electronics-manufacturing customers are in dying industries.
Earlier this month, Micron said it would invest $40 billion in memory chip manufacturing, supported by grants as part of the CHIPS and Science Act, which President Biden signed into law on August 9. Micron anticipated creating 5,000 new jobs as part of the expenditure.
It's looking at a site near Austin, Texas, to build a new factory.
Micron also boosted its quarterly dividend by 15%, to $0.115 cents a share. The dividend was instituted in 2021, and the current yield is 0.72%.
Despite the expected earnings decline, the dividend is a sign that managers have long-term confidence in the company's ability to deliver for shareholders. It can also serve as an enticement for investors to hang onto their shares during a downturn. If you're getting some kind of return through the dividend, that would help (at least somewhat) to offset price declines.
On its chart, Micron is trading below its 10-day, 21-day, 50-day and 200-day moving averages. That's worth noting because it means the stock currently has little upside momentum, despite rebounding with the broader market on Monday morning.
Micron is tracked in the S&P 500, although with a weighting of just 0.187615%, you won't see the stock influencing the broad market direction. Instead, you're more likely to see Micron swept up in a broad market trend.
Micron does seem to be a company with plenty of future potential, despite being currently mired in the doldrums. The dividend increase is a way for the company's managers to signal their confidence. For investors willing to sit through a correction, the stock may be worth investigating. For those who don't like paying an opportunity cost while a stock's price languishes, it may be one to track as the market and the chip industry eventually rebound.
Entrepreneur Editors' Picks
Her Company Is Worth $1 Billion. But It Began as a Way to Solve Her Own Shipping Problems.
6 Benefits of Working With a Franchise Consultant or Broker