Analysis Of KLA-Tencor Corp (KLAC) Dividend Increase

Updated on

KLA-Tencor’ (NYSE:KLAC) dividend was increased by 4% with an overall yield above that of the S&P 500 Index at 2.90%. KLA-Tencor is the world’s leading supplier of yield management systems for the semiconductor industry.  The California based firm serves the semiconductor and LED industries. KLA-Tencor was established in 1997 following the merger of KLA Instruments and Tencor Instruments. KLA-Tencor has paid dividends on a consecutive basis for 11 years. KLA-Tencor currently ranks 22nd in yield within the large cap technology category. KLA-Tencor also released Q1 2017 earnings per share of $1.16 a share two weeks ago. This was up from $0.71 per share in last year’s Q1.  This topped analyst estimates as measured by Thomson Reuters by $0.13 cents a share. The technology firm also released revenue data, taking in $751 million.  This strong revenue number was 16.5% higher than last year’s (Q1 2-016) result.  As for guidance, KLA’s management team indicated that for Q2 2017 revenue should approach a midpoint of $835 million, although the range on either side was $30 million.  Earnings per share are targeted at $1.38, plus of minus $0.10 cents. Both are well ahead of consensus estimates for $772 million in revenue and $1.18 in earnings. KLA also operates a solid balance sheet with $2.5 billion in cash and maintains an investment grade rating of BBB.

KLA-Tencor Corp

KLA-Tencor has maintained a solid three-year growth rate of dividends of 9.6 percent. The quarterly dividend for the December payment will be $0.54 versus the prior year rate of $0.52 per share. KLA-Tencor Corp. does qualify as a new member of our Top 100 Dividend Stocks (see below).

The dividend will be paid at the new higher rate on December 1, 2016, to shareholders of record at close of business on November 15, 2016. KLA-Tencor is currently priced at $74.52. Listed in the table below are the quarterly dividend payments since 2010.

KLA-Tencor Corp

Analysis of KLA-Tencor Corp. is based upon our five key criteria, which include;

KLA-Tencor Corp

Additional Information on P/S ratio and historical yield;

KLA-Tencor Corp

Final Analysis;


  • KLAC’s dividend yield is above that of the S&P 500 Index
  • KLAC maintains a 3 year dividend growth rate of 9.6%.
  • KLAC maintains a credit rating of BBB. This is investment grade.
  • KLAC’s forward P/E ratio is just over 13, below that of the market.
  • KLA-Tencor is trading at a lower than average price/sales (P/S) basis.
  • KLA-Tencor has paid out a dividend consecutively for the past 11 years.
  • KLA-Tencor’s dividend payout ratio is a low 41.94%.


  • KLA-Tencor’s current dividend yield (2.90%) is below it’s five-year average historical dividend yield of 3.32% and well below the max of 4.36%.
  • KLA-Tencor maintains a beta of 1.15, higher than the average company.

KLA-Tencor has a competitive advantage within the semiconductor process diagnostic and control segment with over a 50% market share. It recently attempted to build upon its edge by being acquired by Lam Research. However, the proposed acquisition of KLA-Tencor as dropped following antitrust objections from the Justice Department.  The merger merits were simple, Lam Research is weak in foundry and logic, which are areas of KLA’s strength.  Foundry has been the issue for KLA for the past few years as orders have stagnated primarily due to oversupply and a slowdown in smartphone sales. But this past year, foundry income has grown by double digits. KLA is the top seller in its product category and maintains margins well above its peers.  KLA is not as popular with analysts as other semiconductor firms as 1 firm has a “sell” rating, 8 give the stock a “hold” rating, while 6 have offered a “buy” opinion.  But in our opinion, the advantages outweigh the risks.  This includes the firm’s double-digit yearly dividend increases since 2010, low forward P/E, high credit rating, and a near 3% yield. KLA-Tencor is a member of our  Top 100 Dividend Stocks list at #58.

Disclosure: I have no position in KLA-Tencor

About the Author Timothy J. McIntosh

Mr. McIntosh is the author of the three investment books including the newly released “The Snowball Effect, “The Sector Strategist”, and also “The Bear Market Survival Guide”. He also writes a daily dividend blog

He currently serves as the Chief Investment Officer of SIPCO. He is the portfolio manager for the firm’s U.S. Value Leaders and U.S. Corporate Bond Portfolios. He also served as a Professor of Finance at Eckerd College from 1998 to 2008.He has been featured in such notable publications as the Wall Street Journal, New York Times, USA Today, Investment Advisor, Investment News, Fortune, and The Tampa Bay Times. He holds a Bachelor of Science Degree in Economics from Florida State University, a Master of Business Administration (M.B.A) from the University of Sarasota, and a Master of Public Health Degree (M.P.H) from the University of South Florida. He and his wife and two boys reside in Tampa, Florida.

Leave a Comment