Semiconductor stocks have demonstrated a remarkable resurgence in the past year, outpacing broader market trends. These companies, crucial to the tech manufacturing sector, design and produce chips for various devices, from computers to smartphones. A McKinsey research report forecasts continued growth in the semiconductor market, potentially exceeding $1 trillion by 2030, making chip stocks an appealing investment.
One noteworthy large-cap semiconductor stock currently on the radar is United Microelectronics (NYSE:UMC), boasting a remarkable 320% return over the last five years. Despite this impressive performance, the stock remains 39% below its 2021 highs, presenting a buying opportunity. Moreover, the recent pullback has elevated UMC’s forward dividend yield to an attractive 7.3%, appealing to income-focused investors.
United Microelectronics: A Closer Look
Founded in 1980, Taiwan-based United Microelectronics specializes in the semiconductor foundry business, manufacturing various chips and integrated circuits. Initially an integrated device manufacturer, UMC transitioned to a contract manufacturing model in the mid-1990s, becoming the second-largest contract chipmaker in Taiwan and operating the third-largest foundry globally.
UMC’s Strategic Positioning
In contrast to its larger competitor, Taiwan Semiconductor (NYSE:TSM), UMC focuses on manufacturing older and larger chips, offering a more cost-effective alternative. The company shifted away from competing in the production of smaller chips, concentrating on manufacturing for industries such as automotive and the Internet of Things (IoT). This strategic move led to consistent profits, with an annual increase of nearly 80% in adjusted earnings per share from 2017 to 2022.
UMC’s Partnership with Intel
UMC recently announced a collaboration with tech giant Intel (INTC) to develop a 12-nanometer semiconductor process platform, targeting markets like mobile, networking, and communication infrastructure. This partnership leverages Intel’s at-scale manufacturing in the U.S. and UMC’s foundry expertise, providing customers with a more diversified and resilient supply chain.
High Dividend Yield and Financial Performance
UMC has paid annual dividends since 2010, exhibiting a steady increase. In 2023, the company paid shareholders $0.586 per share, reflecting a 16.5% annual dividend growth over the past 13 years. Despite cautious guidance following Q4 results, UMC’s forward earnings valuation at 10.3 times, combined with a compelling dividend yield of 7.35%, positions it attractively relative to the tech sector median of 1.57%.
Analyst Recommendations and Target Price
Analysts favor UMC stock, with four out of five recommending a “strong buy,” and one suggesting a “hold.” The average target price stands at $8.25, indicating a 6.8% upside from the current trading price. Considering the dividend, total returns could potentially reach 14%.
Featured Image: Freepik
Author Faith Yakubu 
