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Intel Stock: Growth, Income All Wrapped Up in One

Intel Stock: Growth, Income All Wrapped Up in One

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Thursday, 10 October 2019 12:20 PM Current | Bio | Archive

Investors have often turned to technology stocks as investments due to their potential for high growth. It used to be that these types of stocks were not popular among dividend growth investors, as tech companies often have to spend large amounts of capital to continue to grow. For that reason, few tech stocks historically paid dividends to shareholders.

That trend has changed in recent years as many technology companies have begun to pay shareholders a dividend. We feel that there are several companies within the tech sector that offer a good combination of growth, yield and multiple expansion.

One of the top tech stocks that we feel fits this description is Intel Corporation (INTC).

Business Overview, Recent Earnings Results

Intel is the world’s largest manufacturer of microprocessors for personal computer, shipping about 85% of the global supply. The company also offers cloud services through its servers and storage devices. Intel trades with a market capitalization of nearly $218 billion and generates approximately $70 billion in annual revenue.

Intel reported earnings results for the second quarter on July 25, 2019. EPS for the quarter totaled $0.92. This was $0.08 above consensus estimates, but a more than 13% decline from the same quarter the previous year. Revenue was done almost 3% to $16.5 billion. This was $825 million higher than expected.

Revenues for the company’s date-centric businesses were lower by 7%, led by a 10% decline in the Data Center segment. While the communication service provider business was slightly higher for the quarter, this was more than offset by weakness in the cloud and government businesses. The Programmable Solutions Group also declined, down 5% for the quarter and Memory was lower by 13% as pricing pressures hampered results.

Results elsewhere in Intel’s business were solid. Internet of Thing Group had 12% growth. The acquisition of Mobileye contributed a record $201 million to results. This was a 16% increase from the previous year. The PC-centric business was up 1%. Higher demand for performance and commercial products helped drive growth for this business.

Despite weakness in certain areas of its business, Intel raised its guidance for the year and now expects to earn $4.40 per share in 2019, up from $4.35 previously.

Intel grew EPS at an annual rate of 19.5% from 2009 through 2018, but this growth is coming off a severe decline in profitability at the end of the last recession. Growth has slowed to 7% since 2010. Due to recent weakness in certain aspects of the company, we feel a projected EPS growth rate of 5% through 2024 is more appropriate.

Dividends, Valuation and Total Returns

Intel failed to increase its dividend in 2014, ending its previous growth streak at 10 years. Since then, the company has increased its dividend every year. The company increased its dividend by 5% for the March 1, 2019 payment.

Using the annualized yield of $1.26 and the expected EPS for 2019 of $4.40, Intel’s dividend payout ratio is just 29%. This compares quite favorably to the company’s five and 10-year average payout ratios of 35% and 40%, respectively.

The expected payout ratio for the year means that the company’s dividend is well-covered. The current yield of 2.6% is below the stock’s five-year average yield of 2.9%, but above the average yield of 2.0% for the S&P 500.

Using guidance for the year, the stock has a P/E ratio of 11.3. Due to Intel’s leadership in its industry, we have a target P/E ratio of 13. If shares were to trade at this multiple by 2024, then valuation would add 2.8% to annual returns over this period of time.

Total annual returns would consist of the following:

• 5% EPS growth

• 2.6% dividend yield

• 2.8% multiple expansion

We expect Intel to offer total annual returns of 10.4% through 2024.

Final Thoughts

Intel saw some weakness in parts of its business in the most recent quarter. Thinking longer term, we feel that the company offers a solid mix of EPS growth, yield and possible multiple expansion. Investors looking for a technology company that offers a very safe dividend should consider buying shares of Intel at the current price.

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Disclaimer: This is for informational purposes only and is not investment advice. Past performance is no guarantee of future results. Sure Dividend is an investment newsletter provider, and provides investment information, not personalized investment advice.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Intel saw some weakness in parts of its business in the most recent quarter. Thinking longer term, we feel that the company offers a solid mix of EPS growth, yield, and possible multiple expansion.
personal computer, microprocessors, intc
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2019-20-10
Thursday, 10 October 2019 12:20 PM
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