Stock Analysis: Intel

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.

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 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 times earnings, yields 4.20% 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.

Full Disclosure: None

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