TSMC’s Dividend Strategy Amid Record Revenue and Strategic Expansion: Assessing Sustainability in the Age of AI

TSMC, the world’s largest contract chipmaker, has emerged as a linchpin in the global semiconductor industry, driven by surging demand for AI and high-performance computing (HPC) technologies. In 2024, the company reported consolidated revenue of NT$2,894.31 billion (US$90.08 billion), a 33.9% year-over-year increase, with net income rising 39.9% to NT$1,173.27 billion (US$36.52 billion) [1]. This robust performance has enabled TSMC to raise its cash dividend to NT$14.0 per share in 2024, up from NT$11.25 per share in 2023 [1]. However, as the company ramps up capital expenditures (CapEx) to support its global expansion and next-generation manufacturing, investors must assess whether this dividend growth is sustainable.

Financial Performance and Dividend Payout Ratio

TSMC’s 2024 financials underscore its dominance in the AI-driven semiconductor market. The company’s gross and net profit margins reached 56.1% and 40.5%, respectively [1], reflecting pricing power and operational efficiency. With a dividend payout ratio of 30% as of August 2025 [4], TSMC retains significant earnings to fund its aggressive CapEx plans. For context, the 5-year average dividend growth rate stands at 4.87%, but the trailing 1-year growth rate of 11.31% highlights recent acceleration [2]. This suggests TSMC is prioritizing shareholder returns while maintaining flexibility for strategic investments.

Capital Expenditures and Free Cash Flow

TSMC’s CapEx trajectory reveals a strategic pivot. In 2024, the company spent $29.6 billion on expanding advanced technology and packaging capacities, including a $7.5 billion injection into its U.S. subsidiary, TSMC Arizona [4]. For 2025, CapEx is projected to jump to $38–$42 billion, driven by 2nm technology mass production and global manufacturing expansion [4]. Despite this, TSMC’s free cash flow has surged. In 2024, free cash flow reached $26.565 billion, a 177.75% increase from 2023 [2]. Even with elevated 2025 CapEx, the company’s Q2 2025 free cash flow hit $28.7 billion, with margins expanding to 31.8% [3]. This resilience underscores TSMC’s ability to fund growth without compromising dividend sustainability.

AI/HPC Demand: A Tailwind for Future Growth

AI and HPC are reshaping TSMC’s revenue mix. In 2024, AI-related revenue more than tripled and accounted for a mid-teens percentage of total revenue [2]. Management projects AI revenue to grow at a 40% CAGR through 2030, with HPC expected to represent high-50s revenue by then [1]. This trend is critical: TSMC’s 3nm technology, driven by AI and smartphone demand, already contributes 18% of wafer revenue [1]. As AI accelerators and HPC chips become central to global computing, TSMC’s technological leadership ensures recurring revenue streams to support both reinvestment and dividends.

Financial Health and Risk Mitigation

TSMC’s low debt-to-equity ratio of 21.2% and an interest coverage ratio of 211.52 [4] highlight its strong balance sheet. These metrics provide a buffer against economic volatility, ensuring the company can sustain dividends even during downturns. Additionally, TSMC’s global footprint—spanning Arizona, Japan, and Germany—diversifies risk and aligns with client demand for localized production [1].

Conclusion: A Model of Prudent Growth

TSMC’s dividend strategy balances reinvestment and shareholder returns. While CapEx is rising to secure its leadership in 2nm and 3D chip stacking, the company’s free cash flow growth and low leverage position it to maintain—and potentially increase—dividends. AI-driven demand further insulates TSMC from cyclical headwinds, ensuring long-term sustainability. For investors, TSMC exemplifies how strategic capital allocation and technological foresight can create value across multiple dimensions.

Source:
[1] TSMC 2024 Annual Report [https://investor.tsmc.com/static/annualReports/2024/english/index.html]
[2] Taiwan Semiconductor (TSM) Stock Dividends Overview [https://stockinvest.us/dividends/TSM]
[3] Investment analysis of Taiwan Semiconductor [https://freedom24.com/ideas/details/17334]
[4] TSMC board gives green light to $30B capex plan [https://www.mobileworldlive.com/greater-china/tsmc-board-gives-green-light-to-30b-capex-plan/]