How to Buy Taiwan Semiconductor Stock (TSM) – The Motley Fool
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Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Taiwan Semiconductor (TSM 0.08%) is a leading semiconductor manufacturing company based in Taiwan. It created the industry’s Dedicated IC Foundry business model in 1987. Instead of developing its own semiconductors, Taiwan Semiconductor manufactures them for others.
The company manufactured almost 12,700 products for more than 530 customers in 2022. It manufactures semiconductors for companies in the computing, smartphone, Internet of Things (IoT), automotive, and consumer electronics industries.
Taiwan Semiconductor is investing to expand its semiconductor manufacturing capacity. It’s building new fabrication plants to produce state-of-the-art semiconductors to support its customers’ growing needs.
The company’s growth has many people interested in learning how to invest in its stock. Here’s a step-by-step guide on investing in the semiconductor stock and some factors to consider before adding it to your portfolio.
Even though Taiwan Semiconductor is a foreign company, it’s still relatively easy to buy shares of the semiconductor maker. Its American depository receipts (ADRs) trade on the New York Stock Exchange (NYSE) under the stock ticker TSM. Here’s a step-by-step guide on how to add the company to your portfolio.
You’ll need to open and fund a brokerage account before buying shares of any company. If you don’t have one yet, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.
Before making your first trade, you’ll need to determine a budget for how much money you want to invest. You’ll then want to figure out how to allocate that money. The Motley Fool’s investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. You don’t have to get there all at once. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.
It’s essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term. Continue reading to learn more about some crucial factors to consider before investing in Taiwan Semiconductor stock.
Once you’ve opened and funded a brokerage account, set your investing budget, and researched the stock, it’s time to buy shares. The process is relatively straightforward. Go to your brokerage account’s order page and fill out all the relevant information, including:
Here’s a screenshot of an order page from the five-star rated Fidelity Investment’s trading platform:
Once you complete the order page, click to submit your trade and become a Taiwan Semiconductor shareholder.
Investors need to spend time researching a stock before buying shares. Hopefully, this due diligence will increase your belief that the shares are a good long-term investment. However, you might discover something about a company you don’t like, causing you to pass on buying the stock.
To help you on your research journey, here are some factors that might lead you to invest in Taiwan Semiconductor:
On the other hand, here are some reasons why you might not want to buy shares of Taiwan Semiconductor:
Reviewing a company’s profitability is an important part of the research process. Investors will want to see that it’s profitable or on the path to profitability. They also will want a clear vision for profit growth in the future because profit growth has historically played a key role in driving a stock’s price higher over the long term.
Taiwan Semiconductor is a profitable company. It reported $17.3 billion in revenue during the third quarter of 2023. While that was down almost 15% from the prior year, it was up 10% from the second quarter. Meanwhile, the company delivered a strong net profit margin of 38.6%. It also has a history of producing positive free cash flow.
The company uses its cash flow to make new investments and pay dividends. In late 2023, it bought a 10% interest in Intel’s (INTC -1.12%) IMS Nanofabrication business for more than $400 million. It also invested about $100 million into the initial public offering (IPO) of Arm Holdings (ARM 3.9%). Taiwan Semiconductor also continues to invest in expanding its semiconductor manufacturing capacity. These investments should help grow its revenue and profitability in the future.
Taiwan Semiconductor makes dividend payments to its investors. The company declares dividend payments based on the New Taiwan dollar (NT), Taiwan’s official currency. However, it makes dividend payments to ADR holders in U.S. dollars.
Taiwan Semiconductor has routinely increased its dividend over the years. For example, it declared a dividend of 3.50 New Taiwan dollars per share ($0.55 per ADR) for the third quarter of 2023, up from NT3.00 per share ($0.47 per ADR) in the second quarter.
However, actual dividend payments received by ADR holders tend to fluctuate due to changes in the exchange rate between the NT and U.S. dollar:
That foreign exchange risk is something investors need to be aware of since it could cause dividend payments received to fluctuate from quarter to quarter.
Lots of investors prefer to invest passively as opposed to directly owning stocks they must actively manage. They can easily do that through exchange-traded funds (ETFs).
Several ETFs hold shares of Taiwan Semiconductor. The three ETFs with the largest allocation to the semiconductor stock in late 2023 were:
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Taiwan Semiconductor didn’t have an upcoming stock split on the calendar as of late 2023. The company hasn’t completed a stock split in its history. Instead, the semiconductor company has routinely paid some or all of its dividends in stock, with the stock dividend payments acting like mini-stock splits. Taiwan Semiconductor paid its last stock dividend in 2009.
Taiwan Semiconductor has been a trailblazer in the semiconductor industry since its founding in 1987. It has grown into a leading contract manufacturer in the industry. It expects to continue growing in the future as it expands its capacity and makes additional investments.
However, the company has some unique risks. As a Taiwan-based company, it brings geopolitical and foreign exchange risks. These are factors that investors need to consider carefully before buying shares.
You can buy stock in Taiwan Semiconductor in any regular brokerage account or stock trading platform. The Taiwan-based company's American depository receipts (ADRs) trade on the New York Stock Exchange under the stock ticker TSM.
Taiwan Semiconductor is a publicly traded company. The semiconductor company trades on the New York Stock Exchange under the stock ticker TSM.
The three biggest investors in Taiwan Semiconductor as of late 2023 were the National Development Fund (6.4% of its outstanding shares), Citibank (NYSE: C) (Taiwan) in custody for the Government of Singapore (3.3%), and Citibank (Taiwan) in custody for Norges Bank (1.6%). Shareholders in the U.S. owned 20.5% of the company through its American depository receipts (ADRs).
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