Intel as a safe dividend play?

[Mulligan]

Now, I am no big player, and most of my money is in IBonds, CDs , Total Index, but I have saved more money this past year, than planned so I rewarding myself by allowing myself to invest $10k in an individual security. Was looking for a stock with a relatively safe dividend, with potential for growth. Anybody follow this company or invest in it? I know Intel is attached to the hip of the stagnant PC market, but it is spending billions ramping up to take on the Qualcomm's and such in the smartphones and tablets, which presently Intel has only been a bit player. They also are looking at the ultra books as way to sell more chips also. As far as my expectations go, if the stock price didn't budge the next 5 years, but the juicy 4.2% plus dividend remained, I would consider it a success. Anyone have any thoughts?

 

[brewer12345]

I own a small position in the name, although I am really far from a tech investor. I think it looks cheap. They have a strong balance sheet and a lot of intellectual capital, so I think they can figure out how to get out of the PC growth slump given some time. But it may be another microsoft, so we should not get our hopes up too high. I'd sell at 30.

 

[rbmrtn]

I have an open buy limit on INTC @$20, picked some up back in Nov. I don't think business customers will be moving away from PC anytime soon, too much invested in the infrastructure.

 

[sheehs1]

I own some. Bought at $19.56 and did so primarily for the dividend.

 

[packrat44]

A year ago I was heavy in INTC and liquidated at around $27. I have been watching it closely again looking for an entry point.

 

[FIRE'd@51]

I have an open buy limit on INTC @$20

Rather than a standing buy order, why not sell 20-strike puts? If INTC is below 20 at expiration of the put, you will own it at a price of 20 less the put premium. If it doesn't go to 20, you will earn the put premium, and you can rinse and repeat. With a standing buy order, you earn nothing if the stock stays above 20.

 

[clifp]

I spent most of my career there leaving in 99/2000 and I'm still active with Intel Alumni association, and have dwindling number of facebook friends who are there in generally senior positions. That said I don't have a more insight than typical analyst does.

Intel and Berkshire are my biggest positions. In Intel's case it is both because I still have a good chunk of shares at $.625 (well under the annual dividend payment!) and don't want to pay tax. But in Intel case it is also because I think it a save dividend play.

Fundamentally INTC is a $25 stock, unless something dramatically happens, Intel gets a real foothold in the smartphone business,or the desktop/laptop and server business completely collapses. I look to buy more when it gets under $20 (write puts) and when it approaches $30 I start writing covered calls.

The core microprocessor business is highly profitable one which is a blessing and curse. The blessing is obvious, the curse is that all the other business that Intel tries to enter look crappy by comparison, and the company has spent tens of billions enter other tech markets with little success. (e.g McAfee).

On the other hand compared to the other 90s tech giant Microsoft, and Cisco, Intel has been pretty shareholder friendly. Increasing the dividend 76% over the last 5 years (and really double digit dividend increase have been going for 20 years). Plus spending many tens of billions for share buybacks reducing the number of share outstanding by 23% over the last decade.

I actually had a lunch conversation with current CEO Paul Otellini (he is retiring in May and will likely move to the chairmen job) about 15 years ago about dividends and he was one of the early booster of them in the company.

Going forward I expect that company will continue to return more money to shareholders via buybacks and dividend increases. Top priority for free cash flow will always be R&D, followed closely by capital to build the 5-10 billion fabrication facilities, but I think 3rd priority will be return money to shareholder rather than investing in new business opportunities.

 

[Mulligan]

Wow, Clifp when did you buy those shares, 1971? That would always be a good story to tell that you have a stock paying a 100% plus annual dividend.

 

[packrat44]

I can not compete with Clifp's cost basis. But having purchased in the early 80s, after all the stock splits my cost basis was fairly low.

 

[MichaelB]

Intel already looks like another Microsoft. They may change course but until they do this looks like a company with declining fortunes.

 

[ERhoosier]

I wonder if Intel & Microsoft might become the first tech "utilities". Argument to be made to own 'em mainly for cash flow (inc dividends) with little expectation for major growth. Seems to me industrial/business (inc health care) demands alone will keep these 2 giants at least treading water revenue-wise for years to come while spinning off dividends that beat 10yr Treasuries. Obviously share prices will rise/fall but IMHO you could do OK over time if you pick right entry point.
Disclaimer- I have (smallish) long positions in both stocks.

 

[haha]

These stocks might be great, they certainly have high ROE and cash generation and very strong balance sheets and cash positions. But they do have some characteristics that IMO are not ideal for dividend stocks- rapid destruction of their major markets is possible. IOW, technological obsolescence.

It would take longer than many of us have for either MSFT or INTC to go bankrupt.

A stock like P&G or a gas pipeline or an industrial conglomerate like 3M to me at least seem to be on more solid ground, and at times they are also attractively priced.

Of course very little today really qualifies for "buy it and put it in your safe deposit box".

Ha

 

[Ronnieboy]

Rather than a standing buy order, why not sell 20-strike puts? If INTC is below 20 at expiration of the put, you will own it at a price of 20 less the put premium. If it doesn't go to 20, you will earn the put premium, and you can rinse and repeat. With a standing buy order, you earn nothing if the stock stays above 20.

I personally would like to go this route. Is there a good informational book about puts?

 

[haha]

I personally would like to go this route. Is there a good informational book about puts?

Your broker can send you a good pamphlet by the Options Clearing Corp that explains it all. If you have adequate margin or cash in your account, (I think a margin account is required, but maybe not when there is plenty cash.) This is considered a cash covered sale of a put.

This trade is inherently less risky than selling naked calls.

Generally you also have to get permission to trade this level of option before trading.

Ha

 

[KiraC]

If you think the PC world will continue to need Intel chips, it may be a decent investment but with how technology changes, it may be dead-end. The 3-year stock trend is slightly upward even though the last year is clearly down.

 

[HighRoller]

I held some Intel for many years but have sold it all as I moved out of the techs.

 

[Ed_The_Gypsy]

These stocks might be great, they certainly have high ROE and cash generation and very strong balance sheets and cash positions. But they do have some characteristics that IMO are not ideal for dividend stocks- rapid destruction of their major markets is possible. IOW, technological obsolescence.

It would take longer than many of us have for either MSFT or INTC to go bankrupt.

A stock like P&G or a gas pipeline or an industrial conglomerate like 3M to me at least seem to be on more solid ground, and at times they are also attractively priced.

Of course very little today really qualifies for "buy it and put it in your safe deposit box".

Ha

I agree completely! Well put.

 

[check6]

Intel has been rapidly expanding. Huge plants to open in Oregon and AZ this year.

 

[amfox1]

I own some INTC in the stock portion of my account. High dividend, not much downside, unclear how much upside. It is a fairly safe holding.

 

[clifp]

These stocks might be great, they certainly have high ROE and cash generation and very strong balance sheets and cash positions. But they do have some characteristics that IMO are not ideal for dividend stocks- rapid destruction of their major markets is possible. IOW, technological obsolescence.

It would take longer than many of us have for either MSFT or INTC to go bankrupt.

A stock like P&G or a gas pipeline or an industrial conglomerate like 3M to me at least seem to be on more solid ground, and at times they are also attractively priced.

Of course very little today really qualifies for "buy it and put it in your safe deposit box".

Ha

I agree Ha. P&G and 3M are inherently safer stocks than and Intel or Microsoft for the reason you stated. But I also think with a 10 or even 30 year time frames none of these companies are likely to go anywhere with their credit ratings as high as Uncle Sam (and deservedly so IMO).
If we compare them by most metrics INTC (and to a lesser extent MSFT) are more attractively valued than PG, or MMM
in order INTC/PG/MMM
PE 9.0/17.4/14.7
5 year PE average 14.3/17.3/14.8
PEG 1.45/1.8/1.76
Price/Cashflow 5.5/13.3/12.8
Dividend Yield 4.19%/2.94%/2.33%
5 year dividend growth rate 14.36%/10.79%/4.21%

Disclosure I own 3M and would be a buyer of PG in the low 50s.

 

[Running_Man]

For dividend stocks, I like to use value line statistics in the analysis to determine the relative long term safety of the dividend. Fortunately, as Intel is a Dow 30 component Value Line provides the most recent sheet free.

First the good news:
Value Line rates Intel's Financial Strength as A++ their top ranking, which comes from the decades of strong stewardship of their past earnings. And based on that their safety is a "1", which is also a top ranking. Also since 1998 Intel has raised their dividend every year showing a strong commitment to the dividend and a very good dividend policy.

The Downsides:
Since October19th 2012, Intel has been rated a "5" in timeliness meaning it is projected by Value Line to be one of the 5% worst performers in the stock market for the short to intermediate term. Indeed since then Intel has fallen a few percent why the S&P 500 is up around 10 percent from that mark. The earnings predictability score of 35 is too poor for me to make this a dependable dividend play. This score indicates that the reliability in future earnings is worse than 55% of all stocks. I need to have a stock be in the most reliable 25% if I am going to be depending on the dividend. Finally the growth persistence is only 35% which is unacceptable given the unreliable nature of Intel's earnings

Overall this stock has not enough positives for me to consider investing in despite the 4% plus dividend, if the economy were to head into another downturn this would be a stock I would be concerned would cut it's dividend, which at this point would seriously damage the stock price. The strong financials and history of this company is why this stock is listed as one of the 2013 picks in the DOGS of THE DOW, which is a proven investment strategy.

Overall though this company strikes me as a 21st century General Motors type of stock that I would avoid despite the positives.



http://www3.valueline.com/dow30/f4731.pdf

 

[Mulligan]

Well, I hedged a bit. I went and bought $5k of it Friday, and will wait until after march 1, to see if the latest budgeting arguments cause a quick downturn in market to buy the other $5k. This is just a one shot deal for me, to have a little fun, so I will let it ride as long as it looks like they will pay the dividend. Because even if I was fortunate to realize gains, I would probably lose it on buying or selling the next stock.

 

[FIRE'd@51]

Since October19th 2012, Intel has been rated a "5" in timeliness meaning it is projected by Value Line to be one of the 5% worst performers in the stock market for the short to intermediate term. Indeed since then Intel has fallen a few percent why the S&P 500 is up around 10 percent from that mark.

From the Oct 19, 2012 close, the S&P 500 is up 6%, while INTC is down less than one percent.

if the economy were to head into another downturn this would be a stock I would be concerned would cut it's dividend

INTC maintained it's dividend through 2008-2009 and began increasing it again in 2010. The S&P 500 dividend went down 20% during that time period, and only last year got back to its 2008 level.

The strong financials and history of this company is why this stock is listed as one of the 2013 picks in the DOGS of THE DOW

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.


In my opinion, INTC is an attractive candidate for a covered call writing strategy, and that is how I am playing it. I believe that the 4.3% dividend yield coupled with the company's financial strength will give INTC downside support should the market suffer a correction. I'm not particularly bothered by the VL timeliness rating since, if the stock is called away, it is unlikely that I will be taken out of a large move to the upside and can use the proceeds of the assignment to write cash-secured puts at roughly the same strike price. The combination of alternatively writing covered calls or cash-secured puts on a stock that trades in a relatively narrow band can significantly enhance the dividend yield in terms of income

 

[Mulligan]

I have been enjoying my little foray into buying 10k of Intel a few months ago. The stock has jumped almost $2 in the past 2 weeks. Watching it has reaffirmed that I could never be a serious stock trader. When I think it will be going down it goes up and vice versa. Two weeks ago all the bad news about lack of PC shipments came out, and since then it has done nothing but slowly move upward.

 

[brewer12345]

I have been enjoying my little foray into buying 10k of Intel a few months ago. The stock has jumped almost $2 in the past 2 weeks. Watching it has reaffirmed that I could never be a serious stock trader. When I think it will be going down it goes up and vice versa. Two weeks ago all the bad news about lack of PC shipments came out, and since then it has done nothing but slowly move upward.

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.