Top 3 Semiconductor Stocks with Attractive Dividend Yields

11 September 2024 was a big day for Indian semiconductor companies.

The entire semiconductor industry's prospects changed when prime minister Narendra Modi shared several critical aspects and laid the roadmap on how India plans to become a chip manufacturing powerhouse.

Some of these aspects include:

• Over Rs 1.5 trillion worth investment have been committed in semiconductor manufacturing.
• The country is preparing semiconductor workforce of 85,000 technicians, engineers and RNT experts.
• India currently accounts for 20% of global semiconductor design talent.

The key highlight was when Modi said -

• "This is the right time to be in India. In 21st century India, the chips are never down. When the chips are down, you can bet on India."

No wonder most of the top semiconductor stocks surged during the day...

In today's article, we'll look at the top 3 high dividend yield semiconductor stocks.

These stocks are filtered using Equitymaster's powerful stock screener.

Investors seeking regular income while participating in the semiconductor industry's growth can consider these high dividend yield semiconductor stocks.

#1 Vedanta

First on this list is Vedanta.

I know what you're thinking... wasn't Vedanta's ambitious plan for its semiconductor chips segment put on the back burner by the Indian government not long ago?

That's right. The government had, in February 2024, put Vedanta Group's proposal for setting up the mega semiconductor fab plant on the back burner due to the company's inability to rope in a technology partner.

However, it was the Vedanta group that initially planned to turn India into a semiconductor giant with its joint venture with Foxconn. In February 2022, Vedanta had announced its plans to set up a semiconductor plant and it was among the first few participants in the government's PLI scheme.

This JV marked Vedanta's second failed attempt to invest in the country's semiconductor and display ecosystem.

Before this, nearly five years prior, the company had announced and later abandoned, its plan to set up a display manufacturing unit with an investment of US$ 10 billion (bn).

Anyways, what's past is past. Vedanta still has plans to score big with its investments in semiconductor space.

In July 2024, Anil Agarwal reiterated Vedanta's commitment to setting up a semiconductor manufacturing unit, dismissing rumours that the government may have deprioritized the company's plan to enter the sector.

In May 2024, it was reported that Vedanta Semiconductors, a wholly owned subsidiary of Vedanta, raised Rs 18 bn from private creditors.

Vedanta Semiconductors, formerly known as Vedanta Foxconn Semiconductors, was set up in partnership with Foxconn to manufacture chips in India. It was later renamed as the partnership was dissolved in 2023.

The progress of Vedanta's semiconductor business will still depend on the company's ability to identify a new technology partner.

Coming to Vedanta's dividend, the company recently announced a hefty payout of Rs 20 per share as its third interim dividend for financial year 2024-25.

If you look at the company's track record of dividends, it has never disappointed investors for the past three decades.

The company shattered all records in FY23 when it paid a 10,150% dividend on its face value, amounting to Rs 101.5 per share.

We even covered a detailed editorial discussing whether investors can expect a 10,000% dividend this year.

At the current price of Rs 427, Vedanta's current dividend yield stands at 6.9%, making it one of the top semiconductor companies which also pays big dividends.

Vedanta is currently restructuring its business, by demerging into 6 independent listed companies.

Post demerger, Vedanta will hold the upcoming semiconductor and display business.

For more details, check out Vedanta's fact sheet and quarterly results.

#2 HCL Technologies

Second on this list is HCL Technologies.

HCL Technologies is a significant player in the semiconductor industry, offering a comprehensive range of services and solutions across the semiconductor value chain.

The company has established itself as a leader in semiconductor engineering services, boasting a strong track record of partnering with top semiconductor OEMs.

It provides end-to-end engineering services, encompassing design, verification, manufacturing, and testing phases.

The company's expertise spans lithography, deposition, implantation, etching, inspection, metrology, post-silicon validation, and automated test equipment.

The company's deep domain knowledge, coupled with its large pool of engineers, positions it as a preferred partner for semiconductor companies.

HCL Technologies provides IT services to semiconductor and wireless communication companies. These services include application development, IT infrastructure management, and digital transformation. It has a global presence and works with clients worldwide, including semiconductor and wireless communication companies.

In February 2024, HCL Technologies expanded its longstanding collaboration with Intel Foundry to co-develop customized silicon solutions for semiconductor manufacturers, system OEMs (Original Equipment Manufacturers), and cloud service providers to enhance foundry services.

Adding to this in March 2024, HCL Tech expanded its partnership with the semiconductor intellectual property (IP) cores provider Computer Aided Software Technologies (CAST) Inc. for customised chips.

Further, the company is exploring opportunities in setting up a semiconductor wafer fabrication unit and an outsourced semiconductor assembly and test (OSAT) facility.

Coming to HCL Tech's dividend yield, at the current price of Rs 1,786, HCL Tech commands a yield of 2.9%.

So far for the financial year 2024-25, the company has declared and paid an interim dividend of Rs 12 per share in July 2024.

IT companies usually declare regular quarterly payouts, so investors could expect more interim dividends from HCL, as and when it declares its earnings for the remaining three quarters of FY25.

By combining its engineering prowess with manufacturing ambitions, HCL Technologies is well-positioned to capitalize on the growing semiconductor market and become a key player in shaping the future of the industry.

For more details, see HCL Technologies' fact sheet and quarterly results.

#3 Larsen & Toubro (L&T)

Last on this list is L&T.

Unlike other Indian conglomerates venturing into semiconductor manufacturing, L&T has adopted a different approach by concentrating on the design and development of specialized chips rather than manufacturing them.

For this, it has ventured into the design of fabless semiconductor chips by setting up a wholly owned subsidiary with an investment of Rs 8.3 bn.

In its initial phase, the subsidiary - L&T Semiconductor Technologies - plans to focus on semiconductor IC design. This will be followed by the development of a Gallium Nitride (GaN) and Silicon Carbide (SiC) fabrication facility in the second phase.

In July this year, L&T announced that L&T Semiconductor Technologies has signed a share purchased agreement to acquire a 100% stake in SiliConch Systems Pvt. Ltd.

This acquisition is expected to add intellectual property (IP), engineering skillsets and design expertise to strengthen its presence in the fabless semiconductor business.

Coming to its dividend yield, at the current price of Rs 3,525, L&T commands a dividend yield of 1%.

Over the years, L&T has paid consistent dividends to its shareholders. It has been paying dividends to its shareholders since 1994. Its five-year average dividend payout is 43.2%.

Shares of L&T have remained investors' favourite for quite some time, owing to the company's toes dipped in various business verticals.

These include infrastructure, power, hydrocarbon, metal and minerals, defence, aerospace, information technology (IT), products, systems and equipment, finance, and real estate.

With a favourable government tender conversion ratio (to orders) and a five-year low quantum of domestic share of order backlog at 73%, the company is expected to have a reasonable share of revenues coming from pending order book in the next decade.

For more on L&T, check out this video where Co-head of Research at Equitymaster Tanushree Banerjee talks about the company's role in green hydrogen.

Snapshot of High Dividend Yield Semiconductor Stocks

Here's a table showing the above companies on various other important parameters -

Conclusion

While the semiconductor industry offers a compelling opportunity due to its integral role in advancing technology, it is crucial to understand the associated risks before making investment decisions.

Carefully assess all the risks associated such as intense competition, the chip manufacturing industry being cyclical, price wars, lack of technological advancements, and so much more.

Nevertheless, you can now filter the best semiconductor stocks in India using Equitymaster's powerful stock screener.

Here are the most popular ones -

• Fastest Growing Semiconductor Stocks
• Fundamentally Strong Semiconductor Stocks
• Debt Free Semiconductor Stocks
• Top Semiconductor Growth Stocks
• Best Smallcap Semiconductor Stocks

You can also check out the video version of this editorial on Equitymaster's YouTube channel.

That's it for today, happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...