Friday, September 16, 2011

Intel Corporation (INTC) Dividend Stock Analysis 2011

Intel Corporation (INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds. Intel has paid uninterrupted dividends on its common stock since 1992 and increased payments to common shareholders every year for 8 years.

The most recent dividend increase was in July 2011, when the Board of Directors approved a 15.90% increase in the quarterly dividend to 21 cents/share. This was the second consecutive double digit dividend increase for the past year. The largest competitors of Intel include Advanced Micro Devices (AMD), Xilinx (XLNX) and Altera (ALTR).


Over the past decade this dividend growth stock has delivered an annualized total return of 1.40% to its shareholders.

The company has managed to deliver a 30% annual increase in EPS since 2001. The reason for that was the fact that earnings were depressed during the implosion of the tech bubble. Analysts expect Intel to earn $2.37 per share in 2011 and $2.48 per share in 2012. In comparison Intel earned $2.01 /share in 2010. The company has managed to consistently repurchase 2.40% of its common stock outstanding over the past decade through share buybacks.
Earnings per share have been volatile between 2005 and 2009. Tech companies are notorious for being exposed to swings in the economy, as tech spending closely follows the economic cycles. Rapid product obsolescence, strong competition and the need for constant spending for innovation in order to keep up with competition and be ahead of technological advance are not good ingredients for long-term sustainable moat. Intel does have a competitive advantage over its next largest competitor, AMD, as it has the earnings power to outspend AMD on research and development. However it did lose market share five years ago to AMD, which offered a better product at a lower price. While Intel is the leader in providing processors to Personal Computers, this is not a major growth area. In addition, Intel’s product line is not as robust for mobile computing devices.

The return on equity has decreased from after reaching a high of 23% in 2005 and hit a low of 10.80% in 2009. Right now this indicator is on the rebound to above 20%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment in has increased by 25.80% per year over the past decade, which is lower than the growth in EPS.

A 25% growth in distributions translates into the dividend payment doubling almost every 3 years. If we look at historical data, going as far back as 1995, we see that Intel has actually managed to double its dividend every three years on average. Future dividend growth will likely be limited by EPS growth, which I do not expect to exceed the upper single digits over the next decade.

The dividend payout ratio has mostly remained below 50% with the exception of 2008 and 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Intel is trading at 9.70 times earnings, yields 4.10% and appears to have a sustainable dividend payout. The company currently fits my entry criteria, and I would consider initiating a position subject to availability of funds and my portfolio sector allocation.

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3 comments:

  1. I thought your entry criteria was 10yrs of raises? I love INTC and think its a great buy... but wondering if you changed your entry criteria or are willing to make an exception?

    ReplyDelete
  2. I'm a fan (and owner) of INTC as a dividend payer. As tech companies mature, their share prices get penalized when they stop being "growth" stories. The ones who are cash-rich and initiate a serious dividend policy are worth a close look. This is especially true if you believe the stock has fully shed its over-inflated tech bubble/growth-style valuations.

    Intel's cash pile and brainpower give it a good ability to keep innovating with R&D. Don't underestimate its moat on the basis of being in an industry which requires constant innovation. All its competitors are under the same pressure, and there aren't many who can out-R&D Intel consistently. I actually like Intel's moat more than of a company like 3M, which has to innovate over a much broader set of (commoditized) products.

    Also, don't think of Intel as mostly a PC company. Remember that the more people who use handheld or tablet devices, the more need there is for servers.

    ReplyDelete
  3. First Anonymous,

    The reason why I don't own INTC is because of the 10 year rule.. The stock is cheap though..

    2nd Anon,

    INTC is not doing well with the non-PC segment. That might be a problem.

    ReplyDelete

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