Summer Love: A Tech Stock Where Dividends Increase

NEW YORK (TheStreet) -- Summertime is in full swing. This is the season of the year when millions head for the mountains or the seashore to commune with nature.

Camping is one of the most popular pastimes during summer. There's nothing like spreading out your sleeping bag under the stars while listening to the sound of a babbling brook nearby.

Now that I have your attention -- picture this. You recently purchased 100 shares of KLA-Tencor ( KLAC) at around $54 a share.

You're camping by a pristine stream in the mountains and a member of your investment club is hiking by with a big smile on her face.

"What are you looking so pleased about?" you inquire. "I just read an announcement that KLA-Tencor is raising its quarterly dividend 12.5% to 45 cents per share," she replies confidently.

"I found out that it's the fifth dividend increase since KLA-Tencor first instituted its dividend back in April 2005. With the most recent quarter's EPS results set to be announced on July 25th analysts are anticipating that the dividend payout ratio will remain at a modest 40%, sustainable level."

It's a cool day with a gentle breeze. You built a crackling campfire and are roasting marshmallows while your freshly brewed pot of organic Earl Grey tea is cooling down to a drinkable temperature.

"Are you certain about that?" you ask with a note of skepticism. "Absolutely, I even checked it out at minutes before I left the office for the trailhead to begin my hike," she replies

She's obviously pleased because she owns shares, too, and to make matters sweeter the stock has popped 4.8% higher in one day to a new 52-week high price of $58.48.

You realize this is a cause for celebration so you ask her to sit by the fire and roast a marshmallow with you and enjoy some of your aromatic tea. She says "be glad to" and then says, "I bought shares of KLAC at $55. With the annual dividend at $1.80 I'm going to be receiving a 3.27% annual yield."

Being a discreet person you decide not to reveal that you bought your shares as $54.04, which translates to a dividend yield-to-price of a pleasing 3.33%, which is better than the yield on a 10-year Treasury bond.

You decide to ask her why she bought shares of KLAC. She's one of those investors does their homework, so she answers with an air of confidence that sparkles like the sun on a mountain lake.

"I bought it because it's a leading provider of process control and yield management solutions. It partners with customers worldwide to develop state-of-the-art inspection and metrology technologies," she says.

Now you're wishing you had asked her to marry you, or at least be your business partner. But wait -- she's not done answering your question.

"Its technologies serve the semiconductor, LED and other related nanoelectronics industries. With a portfolio of industry standard products and a team of world-class engineers and scientists, KLA-Tencor has created superior solutions for its customers for more than 35 years," she adds with enthusiasm.

You toast to your mutual good fortune and pop one of those perfectly roasted marshmallows in your mouth and savor the tall Douglas firs towering over your heads.

She reaches in her backpack and pulls out a press release from KLAC that she printed out before leaving her office. She hands it to you for your amusement and reassurance.

There's one part that catches your attention: "KLA-Tencor's sustained market leadership and strong cash flow provide the resources to return significant cash to our stockholders through our dividend and share repurchase activities," said Rick Wallace, president and chief executive officer of KLA-Tencor.

"This latest increase in the level of the dividend reflects management's ongoing commitment to our stockholders as we execute our long-term growth strategies." You're not only a happy camper but you're also a convinced and delighted investor.

You turn to your informative, brilliant investment club co-member and suggest a brisk, meandering hike along the mountain stream not far from where you're both sitting. She gladly accepts and off you go, both amazed at your good fortune and awesome surroundings.

On the following Monday morning you're back at your desk, excited to learn more. You find out by going to the company's Web site that on the same day as the dividend increase announcement (Tuesday) KLAC announced Bren Higgins has been appointed executive vice president and chief financial officer (CFO) of the company, reporting directly to CEO Rick Wallace.

Higgins, you learn, will assume the CFO duties the day after KLA-Tencor files its annualrReport for the fiscal year ended June 30 with the Securities and Exchange Commission.

You read CEO Wallace's statement: "A seasoned veteran of KLA-Tencor's finance group, Bren has played an instrumental role within the company for more than a decade and is intimately familiar with our operations. Given his strong financial and accounting experience, we are confident Bren is well-positioned to support our immediate and long-term goals."

Since you're a subscriber to Dave Peltier's "Dividend Stock Advisor" you know some of the important details about the KLAC announcements.

For one thing you know that management has yet to declare the must-own date for the company's next payout, which Peltier expects will be in early August.

You also read that "KLA-Tencor can comfortably cover the new dividend 2.3 times with expected fiscal 2014 (ending June) earnings of $4.14 a share," You're glad to learn that. Then you look at this helpful one-year price chart that also shows the company's quarterly revenue-per-share spike in 2013.

KLAC Chart KLAC data by YCharts

Just then one of your office buddies drops by, sees what you're looking at and asks, "Hey, should I buy some KLAC right now?"

You answer appropriately, "Look, I'm not a financial adviser. All I know is that I didn't buy my shares until the price dropped below $55, so don't go chasing it now. If I were you I'd wait for a correction."

He shakes his head in agreement and you sit back to reflect on what a good summer you're having. Maybe you should go camping more often?

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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