Based on analyst expectations, both Intel and Texas Instruments will report a decline in revenue of between 1% and 2% this year, and then both companies are expected to grow revenue about 4% next year.

And with TXN stock carrying a 3.2% dividend yield, while INTC stock has a comparable 3.3%, it might seem hard to determine which stock is the better long-term investment.

However, one company is definitely superior for dividend investors who have a long-term outlook.

TXN, INTC Match Up in Many Ways

One of the first metrics that dividend investors look at is a company’s payout ratio. This tells investors the percentage of net income that a company pays in dividends. If the number is lower, that company has a good chance of increasing dividend payments in the future. If that ratio is higher, dividend hikes may be difficult for mature businesses like Intel or Texas Instruments.

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That said, free cash flow is a much better metric of dividend affordability than net income. FCF is a reflection of operating income minus capital expenditures, thereby illustrating what a company earns from its operations — whereas net income can be fickle due to the reporting of one-time events.

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Nonetheless, you can see each company’s expected payout ratio over the next 12 months based on trailing-12-month FCF and shares outstanding.

As you can see, the payout ratios, much like the expected growth and dividend yield, of Intel and Texas Instruments are nearly identical. This makes identifying a clear-cut investment favorite more difficult. Although, the good news is that the likelihood of additional dividend increases remains high for both INTC stock and TXN stock.

Where TXN Stock Separates Itself

A dividend investor might struggle to decide between Intel and Texas Instruments, and might even feel inclined to go with INTC because of its brand power. However, Texas Instruments did something on Thursday that I believe is a game changer for TXN stock, and that’s the approval of a $7.5 billion buyback plan on top of the $1.8 billion that remained from its previous authorization.

With a $9.3 billion buyback plan in place, TXN can reduce its share count by more than 18% based on its current market capitalization. That’s a meaningful reduction that will drive its stock higher.

Click to Enlarge As seen in this chart, both TXN and INTC have been good at reducing their share count with buybacks over the last five years. Last year, Intel announced a $20 billion buyback program, and has since repurchased $5.447 billion worth of shares over the last three quarters.

That leaves INTC stock $14.5 billion, enough to repurchase about 10% of its shares at current price.

Still, the past is somewhat irrelevant. What matters is the amount each company has available to spend in order to increase shareholder value. TXN can repurchase 18% of its shares outstanding whereas INTC can do about 10%. That’s a big difference, implying that TXN stock will perform better and is safer for long-term dividend investors.

Click to Enlarge With a 10%-plus reduction in share count over the last five years, the effect has been stock gains for both INTC and TXN.

Theoretically, had TXN not repurchased one share over the last five years, its stock gains would have been equal to its market capitalization increase, 61.6%. However, by reducing its share count by 12.6%, Texas Instruments added an extra 26.5% to its stock gain. That’s a meaningful difference, and suggests that TXN stock will continue to perform well as the company prepares to repurchase 18% of its current share count.

While INTC stock will also experience a boost from repurchasing 10% of its shares, it won’t be to the same degree as TXN.

Bottom Line

With the two companies having a very similar payout ratio, dividend yield and expected growth over the next two years, the difference in buybacks is the one factor that really separates TXN from INTC stock.

In other words, if you are looking for a safe, high-yield investment with minimal downside and the potential for further stock gains, TXN is a great choice.

As of this writing, Brian Nichols does not own any of the stock mentioned, but may initiate a long position in TXN within the next three trading sessions.