Intel: A Bright Future Ahead
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investors purchase a company’s stock for various reasons. Some of them buy to capitalize on fluctuations in market price, while others buy to receive a healthy dividend at the turn of every financial year. Intel Corporation (NASDAQ: INTC) is not only giving a dividend at the turn of every financial year but even more frequently on a quarterly basis. This factor can play as both an attraction to more investors or a repellent. Below, I will take you through the key measures of Intel's stock by analyzing the yield, dividend history, competitors, profitability, and cash flow.
A healthy, Promising and Sustainable Dividend Yield
One of the most effective ways of measuring your return on investment in a certain stock is by using the dividend yield. The Intel dividend yield has been growing over the last 8 years recently hitting a high of $0.84 per share. This represents a forward annual yield of 3.10% from a payout ratio of 33%. This is a very healthy return given the prospects of a continuous growth strategy as depicted by the payout ratio. The payout ratio indicates a high rate of reinvestment in the business, which will then spark growth offering the investor a very promising future ahead, a good reason why the movers and shakers stay put on the stock
The company indicates an impressive record in terms of maintaining a healthy dividend and manages to grow it year on year. This growth stretches back to the year financial year 2003 and 2004 when it had remained stagnant for quite some time. The payout ratio indicates that Intel expansion and diversification strategies are a priority, which can only promise a healthier sustainable dividend in the future.
Uncompromised Profitability for Perceptive Investors
The yield is the most utilized tool for measuring a return on dividend, but what many tend to ignore is the fact that a company’s profit determines the level of yield on dividend, assuming a constant payout ratio. Compromising profitability analysis can lead to loss of important information for decision making, which could affect your returns materially. Intel remains highly profitable having hit a record high revenue of $54 billion for the year 2011. With profit margin hovering around the first quartile, that is, 24% of the reported revenue, this is a clean bill of health for Intel’s stock.
Intel’s profitability and revenue can only be good news, not to mention other supporting factors such as outstanding current and quick ratios of 2.20 and 1.50 respectively, indicating no trouble in meeting the company’ short term obligations. This means that Intel can use its profits in expansion projects and pay dividends as well without straining its finances.
The cash flows do not disappoint either having recovered from a negative figure of $3.957 billion in 2008 in the midst of global financial crisis to positive territories in 2009 and 2010, with 2010 eclipsing the $1.5 billion mark displaying quite a quick turnaround. The trend in cash flows can only climb up and up as backed up by profits.
Unassailable Competitive edge over Prime Competitors
Intel faces a couple of prime competitors both in the industry on a business level and in the stock market. Advanced Micro Devices, Inc (NYSE: AMD) is one of the main competitors to Intel, both on the business level and in the stock market. The other main competitor is Texas Instruments Inc. (Nasdaq: TXN); while Samsung Electronics Co. Ltd is more of a competitor on the business level the stock market. Despite all these competitors having a global reach in terms of products distribution, Intel thrives on an icon brand in its line of business.
Recent reports also indicate a positive future especially with the termination of an antitrust lawsuit, filed by the New York attorney, cleaning the image of Intel and thereby creating a leeway towards a bright future. This is indeed a stock to watch now and in the near future as establishments continue to unfold. These are some of the key developments that keep on raising the share price of Intel.
Intel Stock, Volume Movement
The stock remains liquid and an average transaction volume of approximately 48 million is indeed clear evidence to this. This means that your risk of loss is minimal since you can buy and sell the stock at any time in an instant. Some of the key movers and shakers of Intel stock include Vanguard Group, Inc, State Street Corporation (NYSE: STT) and BlackRock Institutional Company (NYSE: BLK), these being the corporate movers holding between 130 million and 210 million shares each.
So then, should you join them? I think you should. Looking at the statistics, the future is indeed very bright. The stock pays dividends four times in a year however piecemeal split from the amount payable on an annual basis. Depending on how you perceive it, this can be either good or bad news to you. However, I would rather look at it optimistically despite deferring three quarters of your dividends to the future.
Riding on the Yield Curve
The dividend history is very good creating a clear-cut picture of what to expect for the Intel dividend yield in 2012. The consistent dividend growth as well as a forward annual yield growth year on year, creates an upward motion, backed by strong free cash flow levels and favorable debt ratios. Intel payout ratio indicates a high rate of reinvestment of funds to finance developments and investment in other projects for diversification. With these kinds of plans, a dividend yield of 3.50% and above will be too prudent an estimate, to consider adding this stock to your portfolio.
Motley Fool newsletter services recommend BlackRock and Intel. The Motley Fool owns shares of Intel and Texas Instruments. BobbyFisher has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
