We recently published a list of the 15 Best Dividend Stocks to Buy for Long-Term Passive Income. In this article, we are going to take a look at where Texas Instruments Incorporated (NASDAQ:TXN) stands against other best dividend stocks for long-term income.

Passive income, which refers to money earned with little ongoing effort, was once largely the domain of the wealthy – those who could afford to invest in rental properties or build up portfolios that reliably generated dividends. However, since the pandemic, the idea has gained fresh momentum, particularly among millennials and Gen Z, who are coming up with increasingly inventive ways to establish passive income sources.

According to experts, the surge in interest is being driven by a mix of tough job market conditions and the strong influence of social media. While passive income can be a viable option for some, it may not live up to the hype for everyone, as the promise of easy earnings often proves more complex in practice.

Side hustles are becoming increasingly popular as a way for people to bring in passive income. Gen Z, in particular, has moved past the misconception that passive income involves no effort. Instead, they see launching a side business as a valid way to earn money alongside a full-time job. In the past, starting a business often meant renting a physical storefront and paying for newspaper ads. Today, it’s a different story—entrepreneurs can build a website from home using platforms like Squarespace, promote products on TikTok, and hold meetings with clients or collaborators over Zoom. For Gen Z—many of whom were born in the late 1990s—these digital tools have been part of their everyday lives for as long as they can remember.

Natasha Stanley, head coach at Careershifters.org, pointed out that individuals now have far more resources at their disposal to build something independently. She observed that access to the entrepreneurial space had become more inclusive and widespread. The shift toward remote work and education during the pandemic, she noted, had also made the idea of self-employment feel more within reach for many people.

One proven way of generating passive income is through investments in dividend stocks. Companies that generate surplus profits often decide to share a portion of that money with their investors through dividends. The amount they return is typically measured using the dividend yield, which is calculated by dividing the yearly dividend payment by the current stock price.

According to Brian Bollinger, founder of Simply Safe Dividends, building a portfolio focused on dividend-paying stocks can be a game-changer. He explains that depending on regular dividend payments—rather than relying solely on profits from selling stocks—can help reduce the risk of draining your investments. Unlike managing rental properties, he notes, collecting dividends requires very little effort. He made the following comment about dividend investing:

“You could be setting yourself up quite nicely. Because not only do stocks pay a dividend, but they might increase the dividend, and they could benefit from price appreciation as a result of improving earnings outlook and so forth. It’s really about finding companies that can pay safe and rising dividends over time. And as long as that holds true over your retirement horizon, that’s a pretty, pretty nice thing to have.”

A robotic arm in the process of assembling a complex circuit board - showing the industrial scale the company operates at.

Our Methodology:

For this article, we scanned Insider Monkey’s database of over 1,000 hedge funds as of Q4 2024 and selected stocks with strong dividend policies, sound financials, and dividend growth histories. These stocks have a minimum of 1% yield, as of April 24. The stocks are then ranked according to hedge funds having stakes in them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Texas Instruments Incorporated (NASDAQ:TXN)

Number of Hedge Fund Holders: 66

American semiconductor company, Texas Instruments Incorporated (NASDAQ:TXN) specializes in analog and embedded chips. On April 24, the stock surged 8% in premarket trading following the semiconductor company’s report of first-quarter earnings and revenue that surpassed analysts’ forecasts. The company posted revenue of $4.07 billion, which showed an 11% growth from the same period last year. Its net income for the period came in at $1.18 billion, and its EPS came in at $1.28, which beat analysts’ estimates by $0.18.

Texas Instruments Incorporated (NASDAQ:TXN) has provided a second-quarter outlook, projecting revenue between $4.17 billion and $4.53 billion, with earnings per share ranging from $1.21 to $1.47. Additionally, the company now expects its effective tax rate for the second quarter to be around 12% to 13%.

Texas Instruments Incorporated (NASDAQ:TXN) also generated strong cash, which fulfilled its shareholders’ obligations. For the trailing 12 months, TI generated $6.2 billion in cash flow from operations, highlighting the strength of its business model, the quality of its product portfolio, and the advantages of 300mm production. Free cash flow for the same period amounted to $1.7 billion. Over the past year, Texas Instruments invested $3.8 billion in research and development (R&D) and selling, general, and administrative expenses (SG&A), allocated $4.7 billion toward capital expenditures, and returned $6.4 billion to its shareholders.

On April 18, Texas Instruments Incorporated (NASDAQ:TXN) declared a quarterly dividend of $1.36 per share, which was in line with its previous dividend. The company has been raising its payouts for 21 consecutive years, which makes TXN one of the best dividend stocks for passive income. As of April 24, the stock supports a dividend yield of 3.36%.

Overall, TXN ranks 7th on our list of the best dividend stocks for long term passive income. While we acknowledge the potential of TXN as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than TXN but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.