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Texas Instruments (TXN ) is extremely shareholder-friendly: management has a stated policy of returning 100% of free cash flow to shareholders through dividends and share repurchases. It currently pays a $1.52 per share annualized dividend, which results in an attractive 2.5% dividend yield. This is significantly higher than the S&P 500 Index, which has a 2% dividend yield on average. In addition, Texas Instruments stock has been a notable outperformer for an extended period; based on its May 25 closing price, the stock has gained 10% over the past one year.

Investors should still feel comfortable buying the stock, since it is still attractively priced: its valuation remains on-par with the market multiple. It is reasonable for Texas Instruments to hold an above-average multiple, given the high quality of its business. The company has restructured itself and as a result holds significant scale and competitive advantages that should provide it with earnings stability going forward. It does face certain headwinds, including the strengthening US dollar, but these are cyclical factors. Over the long term, investors should feel comfortable with Texas Instruments’ attractive valuation.

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