Allow this five-year chart to illustrate the ongoing profitability of Analog Devices that derives from its outstanding corporate principles built on the legacy of the late Jerry Fishman. It serves to help us understand why ADI offers a sustainable dividend of close to 3%.
With a trailing 12-month (TTM) operating margin of more than 30% and profit margin of 24%, ADI has been able to generate annual revenue of $2.68 billion (TTM). In its most recent quarter (ended Feb. 2, 2013) it reported total cash of $4 billion.
During the earnings conference call CFO David Zinser was asked a question about the company's dividend policies. He answered:
"We drive dividend based on looking at our earnings and giving out a percentage of those earnings in the form of a dividend. It just so happens that it translates into this 3% yield, although we're mindful of it. It's certainly something that we pay attention to, but it isn't the major driver of how we drive the dividend."
Speaking on behalf of ADI, Zinser explained:
"Our goal is [that the] dividend is our primary means of returning cash to shareholders. We want it to continue. We want it to grow as earnings grow and we look at the [stock] buyback as more of our opportunistic opportunities to enhance the cash going back to shareholders, albeit at different intervals depending on the stock price relative to kind of historical levels."
Vincent Roche assumed Fishman's former roles as President and CEO. Roche commented on the above explanation by revealing how the Analog Devices is poised to grow earnings and remain competitive:
"To add a little color to what David said, we're in the transition between 3G and 4G and wireless infrastructure and as that gains pace, we're very well-positioned as a company with good market share, a lot of good design coverage and extra build materials value in 4G compared to 3G."
Roche went on to say:
"So, as that starts to gather steam, which we hope is sometime in the second half of the year, albeit, so far the carriers have been fairly skittish, but somewhere we believe in the fourth quarter and to the early part of the coming year we do expect to see the carrier start to accelerate the build out of their networks in terms of capacity rather than coverage. So I think that will help the margin structures and the growth overall for the company."