Intel: Is It Time To Consider This Blue Chip?

There is probably no home or enterprise on the planet where Intel Corporation (NASDAQ: INTC) isn’t present. If you’re a consumer, at least one of your computing devices probably runs on an Intel processor. The same goes for enterprise devices. Today, Intel is the biggest chip maker in the world, its products powering PCs, data centers, tablets, smartphones, automobiles, automated factory systems and medical devices. But that doesn’t necessarily mean it would be attractive to a dividend investor. Let’s explore Intel’s evolution and present-day state and see if it deserves the attention of income investors.

The start

Intel
Intel

Intel began in 1968 as NM Electronics. Its founders, Bob Noyce and Gordon Moore, purchased the rights to the Intel name later that year and the first product from the company came out in 1969. That was the 3101 Schottky bipolar random access memory (RAM).

In 1971, Intel went public, raising $6.8 million by selling shares at $23.50 apiece. This was also the year when Intel brought out its first microprocessor. Nowadays, the company commands about 80% of the global microprocessor market. It’s also one of the world’s biggest corporations, with a market cap of $175 billion.

The company prides itself on numerous computing innovations. It was the first to launch an in-circuit emulator, a single-board computer, microcontrollers, a single-chip codec, CHMOS DRAMs and a quad-core processor. Intel is also the company we have to thank for the ultrabook category. With a processor portfolio that features such highly recognizable names as Pentium, Celeron, Xeon, Itanium, Centrino and Atom, Intel has the solutions to power every type of computing technology – from hand-held devices to high-performance workstations and servers.

Where Intel stands today

One memorable year in the company’s corporate history was 1983, when Intel crossed the $1 billion revenue mark. In 2015, the company generated revenues of $55.4 billion, net income of $11.4 billion and earnings per share of $2.33. Shareholders received $4.6 billion through dividends in 2015 and Intel spent $3 billion on share repurchases.

The most recent financial results came out on 18 October 2016, when the company released its third-quarter report. GAAP revenues were at a record $15.8 billion, or 9% higher year-on-year. Net income recorded the same increase, reaching $3.4 billion, while earnings per share came at $0.69. According to Intel CEO Brian Krzanich, it was an “outstanding quarter.”

Let’s talk dividends

OK, it’s obvious that Intel is a top player in its field and a solid profit generator. However, technology is one of the most dynamic and fiercely competitive sectors. It’s one where fortunes are made and lost on a daily basis. You only have to think of the dot-com bubble of the late 1990s to realize that ups and downs are very common on the technology playground. Dividend investors would find comfort in the fact that Intel has been around for quite a while and has proved good at surviving. What’s more, the company has turned its attention to the areas that will shape personal and enterprise computing in the future – the cloud, the Internet of Things (IoT), artificial intelligence (AI), virtual reality (VR) and 5G connectivity.

With regard to dividends, Intel made the first payment to its shareholders in 1992. It is currently paying $0.26 per share, which translates into a yield of 2.82%. The annualized payout is $1.04, while the payout ratio is 39%. These figures show us an attractive yield, quite above the industry average of 1.08, and plenty of room for increasing the payment. That, however, would depend on how good Intel is at beating the competition and improving its profitability at a steady pace.

Now may be the time

There’s always some new tech star that grabs the attention of investors. However, there’s no guarantee that the latest market darling has what it takes to endure. With Intel, investors at least know that they’re dealing with a stable enterprise. It has been through ups and downs and is still standing. What could put off income investors is the fact that Intel has not been known for regular dividend increases. There have been periods with no growth at all. On the bright side, Intel hasn’t reduced or stopped the payouts in times of hardship, which speaks of commitment to shareholder returns.

Any investment in a technology company is a daring bet. It’s easier to opt for buying when dealing with an established name, as is the case here. However, the risk is always there so investors have to choose the moment carefully. Intel is currently trading close to its 52-week high of $38.36. On the other hand, the P/E ratio is 17.40 compared to an industry median of 23.47, GuruFocus estimates. On a forward basis, we see 13.07 versus 19.16, respectively. Reuters data show a trailing 12-month P/S ratio of 3.02 for Intel against 23.89 for the industry and 6.02 for the sector.

For those who prefer a little help from analysts, Zacks data reveal 19 brokerage firms had Intel rated as a “strong buy” as of 20 January. Among the remaining 12, one was a “buy” recommendation and eight were “hold.”

Disclosure:

I do not have a financial interest in any of the companies featured in this article, nor do I plan on having one within the next three days.

This article reflects my opinions. The company is not paying me to write it and I do not have any business relationship with any companies mentioned in it.

 

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