Portfolio Update
The FiveTwenty portfolio received $54.96 dividends in the past week. LMT and TROW paid their quarterly dividend during the week.
| Past Week Dividend | $54.96 |
| Current Quarter Dividend (Q4 2021) | $1,009.48 |
| LifeTime Dividend | $2,110.81 |
| Estimated Annual Dividend | $3,939.86 |
The capital allocation for the week of 01/02/2022 to 01/08/2022 will be used to establish a position in Intel Corp (NASDAQ: INTC).
INTC – Company Profile
Intel Corp (INTC) is an American multinational technology company. It is the world’s largest semiconductor chip manufacturer by revenue, and is the developer of the x86 series microprocessors, the processors found in most personal computers. The company’s operations are organized through multiple segments: Client Computing Group (CCG), Data Center Group (DCG), Internet of Things (IOTG), Mobileye, Non-volatile Memory Solutions Group (NSG), and Programmable Solutions Group (PSG). Official Site | Wikipedia
| Dividend Streak | 7 years |
| Yield | 2.7% |
| Payout Ratio | 23.56%1 (GAAP 26.99%) |
| P/E | 8.731 (GAAP 10) |
1 computed using TTM adjusted EPS of $5.90 as of Q3 2021
Financials
Does INTC have the financial means to sustain and raise its dividend going forward?
Over the last decade, INTC has grown its revenue considerably. The company experience declining revenues in FY 2012 and 2013 compared to the previous years. However, revenue rebounded in 2014 and have grown consistently in the years since. Net earnings despite almost doubling from 2011 to 2020 had a less consistent growth trajectory and instead have grown in big bounds.
In the last 10 years, EPS have shown a similar trend to net earnings. EPS for 2020 were more than double EPS for 2011 with most of the gains happening one big jump in 2018. On the other hand, adjusted EPS exhibited a growth trend closer to the one shown by revenues. Adjusted EPS declined for 2012 and 2013 compared to the previous year and the grew consistently between 2014 and 2020.
The average dividend per share growth rate was 6.6% per year in the past 10 years and 7.0% per year in the past 3 years. (per GuruFocus). INTC has been able to grow its dividend payout good average rate while at the same time dropping its payout ratio as part of adjusted EPS to below 25%. It is good the see a low payout ratio for INTC as this should allow the company to execute on its capital investment plans without jeopardizing the dividend.
INTC in 2021 and beyond
For the first 9 months of 2021 INTC reported revenue growth of 1%, net earnings increase of 1.3%, and EPS 6% higher than the same period a year ago. In Q3 2021 revenues grew 5%, net income increased 60%, and EPS were 64% higher the Q3 2020. Q3 2021 financial results reversed the trend of lower performance compared to the same periods of 2020 that the company posted in Q1 and Q2.
Looking ahead, the company expect full year 2021 revenue to be $77.7 billion, essentially flat compared to 2020; EPS of $4.50, a 8.9% decrease compared to 2020; and adjusted EPS of $5.28, essentially flat compared to 2020. The guidance issues during the Q3 2021 earnings report represented an upwards revision compared to guidance issues as part of the Q2 2021 earnings report.
Valuation
Are we paying too much for INTC at the current share price?
In the last 10 years, INTC’s P/E ratio saw a low of 8.5 and a high of 25.29, with a median value of 12.74. (per GuruFocus) The current TTM P/E ratio of 10 (and 8.73 on adjusted EPS) is below the historical median.
The current share price of $51.50 is 2.3% above the 50-day moving average and 6.5% below the 200-day moving average. Additionally, the share price is near the 25th percentile of the 52 week trading range.
INTC share price has not done well this year. After rallying for the first 3 months of the year to a high of $68.26 on 04/09/2021, the share dropped sharply following the Q1 2021 earnings release and have continued to trade down the remainder of the year. We believe that the current P/E multiple signals an attractive entry point.
Yield
How does the current dividend yield for INTC compare to historical values?
In the last 10 years, the dividend yield for INTC has been in a range of 1.84% to 4.37%, with a median of 2.84%. The current TTM yield of 2.70% is slightly below the historical median. However, INTC is due to raise its dividend when it declares the Q1 2022 payout, given that INTC’s revenue and earnings in FY 2021 where higher than in FY 2020.
Therefore, we expect that establishing a position in INTC at this time will provide us with a starting yield at about the historical media.
Thesis
Why are we adding INTC to the FiveTwenty portfolio?
Currently, INTC has only a 7 year streak of increasing dividends due to the fact that it paused its dividend raises in 2014. However, since first starting to pay a dividend in 1992 the company has raised its dividend in all but 3 years (2002, 2003, and 2014) and never cut is dividend. This indicates a strong commitment of the company to its dividend payout.
Although it is facing strong competition from AMD and nVidia, INTC continues to be the biggest and most dominant company in its sector. We believe that the company will be able to be a leader in its sector and profitably grow its business. That in turn will allow it to continue to support a growing dividend payout.
Additional Research
- The 10 Biggest Dividend Paying Tech Stocks Ranked – Sure Dividend
- Intel Focuses On Unlocking Massive Shareholder Value (NASDAQ:INTC) | Seeking Alpha
- Will Weakness in Intel Corporation’s (NASDAQ:INTC) Stock Prove Temporary Given Strong Fundamentals? – Simply Wall St News
Photo by Slejven Djurakovic on Unsplash
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