Intel as a safe dividend play?

[Mulligan]

Actually, you are doing great. Make your own decision, ignore all the negative swirl, hold your nose and buy what you believe is a fundamentally sound equity, and hang on until the negativity dissipates and the market comes back to the name you bought. That is what you and I did with Intel. Hopefully it continues to work out.

I just bought a little ABX today mostly based on the fact that it is at multi-year lows, appears to be in one piece, and is the lowest cost producer. There is clearly downside risk, but it seems to me that people are awfully pessimistic.

I hope to watch it slowly go up, and pat myself on the back for a good call, but never sell and just keep collecting the dividends. I can stomach watching 10k drop to 6k. But I do not think I am mentally tough enough to watch 100k sink to 60k.

 

[comicbookgujy]

I bought Intel at $18 during the market crash and I saw it sank to $13. Sold it for a profit when the market recovered.

bought 1k shares at $21 for the dividend...tired of seeing .0000001% return in Money Market fund.

Can't believe this thing was at $60 back in 2000's!!!

 

[Mulligan]

I bought Intel at $18 during the market crash and I saw it sank to $13. Sold it for a profit when the market recovered.

bought 1k shares at $21 for the dividend...tired of seeing .0000001% return in Money Market fund.

Can't believe this thing was at $60 back in 2000's!!!

I know exactly how I would have played it...I would have bought at 60, road it all the way down, thinking it has to come back with all the profits it is generating. Finally throwing in the towel at $15, bought it back at $30 last year thinking its on it's way up, and still be underwater a second time!

 

[amfox1]

Sold the last of my Intel today for a small profit.

 

[ESRwannabe]

I'm long 2,000 shares of INTC. I bought in a few weeks ago.

My gamble is that INTC can hold onto their market share in PCs and data center, and grow share in tablets and smartphones. I think they have a very good chance of doing so.

Intel has superior manufacturing capability and I don't see TSMC nor Global Foundries catching up. I believe this will gradually allow Intel to take market share from the ARMH zerg.

There is also always the possibility that Intel, Micron and Apple may finally team up against their nemesis, Samsung. If Intel could just get the foundry business that would be awesome. I doubt Apple will switch to x86 but who knows. They have done it before, it could happen again.

Intel has been putting a ton of money into capex. Something is up. The speculation I see a lot is a foundry deal with Apple.

 

[check6]

I'm long 2,000 shares of INTC. I bought in a few weeks ago.

I am long as well. Holding out till the 2nd half.

Seeking Alpha blogs from an acquaintance:

Intel: What Makes Mid-Year Different? - Seeking Alpha

Intel: Earnings Conference Call Post Mortem - Seeking Alpha

 

[FinanceDude]

Intel has done nothing but go downhill since CFB and clifp retired and left there.....

 

[FIREd]

I am long INTC as well, although I don't expect huge capital gains from this stock (I set up an alert in 2001 for when INTC dips below $21 and 12 years later I still get those emails fairly regularly!). It's a very cyclical stock. The key I think is to buy it on the dips.

 

[bssc]

Long INTC but have had it since 2004 or so. It was in the 20s.

 

[FUEGO]

Strange times when Intel and Apple look like value stocks.

 

[Running_Man]

Actually, the DOGS OF THE DOW are simply the 10 highest yielding stocks in the DOW without any regard to financial strength or other fundamental matters. That is why INTC is included.

A stock to be included in the Dow Jones Industrial Average needs to be displaying financial strength and a leader in the industry, otherwise you are dropped from the index. By the nature of the index and the types of stocks to choose from in the Dogs of the Dow strategy you are placed in that group of stocks which has historically done very well because I believe of those characteristics. That is all I was poorly trying to say in regards to that.

As to the safety of the dividend this stock is just above the dividend safety of bank stocks in 2007 in my mind. I do not think it is a good sign when there have been 18 instances of insider selling in the last year for Intel with no insider buying when the stock is so apparently cheap. The increase in long term debt which was stable at around 2 billion from 2002-2010 to 13 billion dollars today also exposes this company to increases in interest rates. Easy to add debt when rates are low, hard to adjust if times get tough. Most of this money was used to buy shares back, in capital intensive industries I do not at all understand that coporate strategy. Additionally while income tax rates have declined from 31% of net to 25% the net after tax margins have dropped from 27 percent to 18 percent in the last 4 years. Sales for the last 3 years are flat at 53 billion. Most likely these along with lower than expected earnings reports have led to a Value Line rating of "5".

I would never own a stock with a "5" rating from Value Line, this is where most of the bank stocks were in 2007 before their massive fall. This for me is the one blinking light I always pay attention when it is flashing. But I do understand and respect the bull case for this stock as well. But an economic downturn and a dividend cut and this is a $10 stock, again just from my point of view.

 

[Mulligan]

A stock to be included in the Dow Jones Industrial Average needs to be displaying financial strength and a leader in the industry, otherwise you are dropped from the index. By the nature of the index and the types of stocks to choose from in the Dogs of the Dow strategy you are placed in that group of stocks which has historically done very well because I believe of those characteristics. That is all I was poorly trying to say in regards to that.

As to the safety of the dividend this stock is just above the dividend safety of bank stocks in 2007 in my mind. I do not think it is a good sign when there have been 18 instances of insider selling in the last year for Intel with no insider buying when the stock is so apparently cheap. The increase in long term debt which was stable at around 2 billion from 2002-2010 to 13 billion dollars today also exposes this company to increases in interest rates. Easy to add debt when rates are low, hard to adjust if times get tough. Most of this money was used to buy shares back, in capital intensive industries I do not at all understand that coporate strategy. Additionally while income tax rates have declined from 31% of net to 25% the net after tax margins have dropped from 27 percent to 18 percent in the last 4 years. Sales for the last 3 years are flat at 53 billion. Most likely these along with lower than expected earnings reports have led to a Value Line rating of "5".

I would never own a stock with a "5" rating from Value Line, this is where most of the bank stocks were in 2007 before their massive fall. This for me is the one blinking light I always pay attention when it is flashing. But I do understand and respect the bull case for this stock as well. But an economic downturn and a dividend cut and this is a $10 stock, again just from my point of view.

I am not a financial expert, and although I bought about 500 shares of it, I would never buy enough of this or any stock to cause me major financial pain. Your concerns were the negatives I worried about, plus declining PC sales. The positives as mentioned by others are anticipating them muscling their way into the tablet and phone markets, contract chip work, Internet security, amongst other businesses they are trying to grow.

Is the reason they borrow to buy shares back partially because the interest rate from borrowing is cheaper interest than the dividend payout "interest rate"? If I understand correctly, borrowing also helps lower the corporate tax rate. I have read that many people claim to buy the stock in the lower 20's and sell when it is in the upper 20's and repeat the process.

 

[brewer12345]

Is the reason they borrow to buy shares back partially because the interest rate from borrowing is cheaper interest than the dividend payout "interest rate"? If I understand correctly, borrowing also helps lower the corporate tax rate. I have read that many people claim to buy the stock in the lower 20's and sell when it is in the upper 20's and repeat the process.

There are a lot of considerations that go into leveraging a corporate balance sheet to buy back shares. Cost of funds is definitely a consideration. I think the INTC buyback activity looks a lot like LOW 2 or 3 years ago. They were extremely out of favor, housing was never going to recover, etc. But LOW had a solid balance sheet and they issued debt and bought back a truckload of stock. Between that and housing coming back, the stock went from about 20 to the high 30s pretty quickly.

 

[clifp]

Personally I am bit skeptical of all of these rating services. Schwab has Intel at C, Morningstar says 4 stars, and Value Line has it a 5 timeliness the worse. All claim that following there guidelines produce superior results, yet mutual funds that I have tried this somehow don't seem to do so well.

I do agree there is more risk to the dividend than meets the eye. Listening to the conference call, it sounds like management is more concerned about not having sufficient capacity than too much. If the PC business continue to deteriorate, profits will decline dramatically and the dividend could be in danger. Never the less, if the semiconductor computer business is like the banking business in 2007, than Intel is much more like Wells Fargo or JP Morgan than BofA or Citigroup.

I completely disagree with you about the wisdom of taking on more debt to buy back stock. I think is very smart financial engineering. Look at the debt they issued back in Dec, 5 year bonds @1.35% and 10 year with a 2,7% coupon 20 year @4% coupon and 30 year debt @4.25%. All this used to buy back stock at < $21 with a dividend yield over for 4.25%. The interest on the debt is tax deductible where dividends are paid after tax. The bonds are callable if interest rate continue to stay low or decline. If dividends increase then this is move is an even a wiser course. The financial leverage of 1.65 is hardly enough to be troubling. Since INTC current assets easily cover the total debt and are also equal to 4 years of dividend payments.

IMO there is no point in have AA credit rating at time of historically low interest rates if you don't take advantage of it.

 

[Ronnieboy]

There is also always the possibility that Intel, Micron and Apple may finally team up against their nemesis, Samsung.

Intel and Micron have teamed up with their joint venture "I/M Flash" (Intel/Micron). They make flash memory.

 

[Mulligan]

Wow, Intel is really popping the last 2 days. If I had a brain in my head, I would sell my little 10k initial investment, just so I can brag about my 25% return in 3 months, and never buy anything again.