Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

November 4, 2009 - Microchip Technology Inc. (MCHP-NASDAQ) together with its subsidiaries, develops and manufactures semiconductor products for various embedded control applications. Its product portfolio comprises 8-bit, 16-bit, and 32-bit PIC microcontrollers; and16-bit dsPIC digital signal controllers, which feature on-board flash memory technology.

It serves consumer, automotive, industrial, office automation, and telecommunication markets. The company markets primarily through a network of direct sales personnel and distributors in the Americas, Europe, and Asia. Microchip Technology Incorporated was founded in 1989 and is based in Chandler, Arizona.

Microchip Tech has probably chipped its way into your car, your office copier, and maybe even your wallet. The semiconductor maker offers a variety of embedded devices used in keyless locks, garage door openers, and smart cards.

Here's something income investors will like to see: its Board of Directors declared a quarterly cash dividend on its common stock of 34 cents per share. The dividend is payable on December 2, 2009 to stockholders of record on November 18, 2009. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal year 2003, and has increased the dividend 23 times since then.

Said Steve Sanghi, President and CEO: "We are extremely pleased with the progress we have made in our business. We grew our cash and investment balance significantly during the September 2009 quarter and we have extremely high confidence in Microchip's ability to generate cash flow in future periods."

Analysts estimate the second fiscal quarter (ended in September, fiscal year ends in March) will show 21 cent a share, well below the 41 cents of last year's second period. But sequentially, that's well ahead of the 15 cents reported in the first quarter. For the full year, consensus estimate from 15 analysts is 86 cents a share (compared to $1.11 made in 2009). For 2011, they see $1.22. Newsflash: as this was being written, the company released earnings of 29 cents for the September quarter, well ahead of the 21 cents expected.

Sales are improving in the Microcontroller divison, where 8-bit, 16-bit, and 32-bit MCU's are built. In particular, the 16-bit market has shown strong demand. The company is gaining market share in the auto industry thanks to its extensive product offerings. Europe also showed an upturn in the summer months, a usually quiet time. The analog buisness is also showing better numbers with recent design wins from new product development. The Memory division is having a tougher go of it with competition cutting prices. Microchip isn't following, willing to sacrifice sales to keep its margins. The company is ramping production facilities to meet new demand in most of its categories and should see margin improvement in the next few quarters.

There was a boost to shareholder equity recently as accounting for the company's convertible notes changed, adding $490 million. The carrying value of the bonds used to $1.15 billion. Now it's $335 million.

The dividend, though larger than current earnings, should be safe as the company has plenty of cash flow to cover it. Current cash in the bank is $1.4 billion or $7.70 per share.

More numbers: Capital spending should only be $20 million this year. Market Cap is $4.48 billion. Trailing P/E is 22.6; Forward P/E is 20. Price to Sales is 5.34. Price to book is 3.03. Book Value is $7.97. Operating margin in the last 12 months was 27.54% while Profit margin was 24.23%. Return on Equity was 16%. Current ratio is 11.81. There are 182.95 million shares outstanding with a float of 178.27 million. Insiders own 2.51%. Institutions own almost all of the stock. The dividend is 34 cents a share per quarter or $1.36 for the year.

Income investors should find this stock of interest, not only for its strong history of paying dividends, but also for the potential capital appreciation that should happen if global economies recover.

- Company Web site: www.microchip.com

Ted Allrich