New Buy: Analog Devices Inc. (ADI)

With record breaking S&P and Nasdaq performance I find it increasingly hard to find dividend growth stocks within a suitable buy range. The majority of companies on my watch list are too expensive for my taste at the moment.

Case in point: I had my eyes set on a utility to add to my portfolio, NextEra Energy (NEE). In recent weeks I saw the price climbing and climbing - well above the 130-135 range I was looking for. For comparison - the stock was trading at a much more attractive price of 120 at just the beginning of the year.

However, leaving NextEra aside for now, I came across a buy opportunity in the Internet of Things (IoT) realm - one of the industries of the future.

On May 15 I bought 20 shares of Analog Devices Inc. (ADI) for a total of $1,583. 

In this post I explain the reasons why I made this addition to my portfolio and what this means for my forward dividend income. 

Analog Devices, Inc. designs, manufactures, and markets a portfolio of solutions that leverage analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems.

It offers data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; high-performance amplifiers to condition analog signals; and radio frequency ICs to support cellular infrastructure. isolation in patient monitors; and smart metering and satellite applications.

‘Analog’ might sound like your grandfather’s tech - but is actually a vital component of the IoT. Analog technology plays an important role in growth segments such as the ‘connected car‘ or the ‘intelligent factory‘.

As can be seen in the chart below the share price has steadily increased over the past year, from below 60 to around 80 dollars. Lately the appreciation stalled somewhat over concerns that the company’s tech would be left out in the next generation iPhone.

Given Analog Devices‘s attractive dividend features I used that modest pullback to initiate a position.

ADI is a dividend contender with an impressive 15 year streak of dividend increases. The current yield is  2.29% – lower than the average 3.5% yield I strive for in building my portfolio.

The payout ratio is at 61%, leaving room for continued dividend growth. The 5 year dividend growth is a decent 10.24%.

Comparing Analog Devices‘s Earnings per Share (EPS) in the last quarter versus the same quarter in the prior year shows a 32.69% increase. Current year EPS versus last year equals a 30.68% increase.

The stock is by no means cheap. The Price/Earnings (P/E) ratio is 26.8, above the 5 year average of 23.6, but slightly below the industry’s 5 year average of 27.3.

In their May 13 report CFRA marks Analog Devices Inc. as a 4 star buy with a 12 month target price of $87 - about 10% above my buying price.

Given Analog Device’s yearly dividend of $1.80 per share this purchase increased my forward annual dividend income by $36.

What do you think about Analog Devices? Are you still able to find attractive buys in this market? Leave a comment/reply to share your thoughts!

4 thoughts on “New Buy: Analog Devices Inc. (ADI)”

    1. DD, thanks. I wasn’t tracking this stock either - but came across it in an industry article. Perhaps it’s the ‘Analog’ part that makes people skip over it… anyway, I think Analog is well positioned for IoT growth, has rapid EPS growth and attractive dividend features. Price isn’t a bargain, but acceptable given those three reasons.

      Glad you liked it!

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