Intel Corporation (INTC) shares have not performed well in recent weeks. Just about everywhere you look it is easy to find negative headlines which range from news that Intel CEO Paul Otellini plans to resign in 2013, to macro-economic issues such as weak sales in Europe, to sector-specific concerns that PC sales are in a secular decline due to tablets like the Apple (AAPL) iPad. There is no doubt that Intel faces challenges, but it also has successfully managed competitive and other issues for decades. The stock has dropped from nearly $27 per share in August, to just around $19 today. That means a lot of negative news is priced in, so investors who like to buy low and collect meaningful dividends should consider picking up Intel shares now. In fact, Intel could be a perfect stock for income investors - here's why:
1) Let's start with the dividend which currently yields about 4.5%. The average stock in the S&P 500 Index (SPY) yields just over 2%, so Intel investors can collect about twice as much. Furthermore, Intel has a solid history of making payments to shareholders and it has been regularly increasing the dividend. For example, in 2007, Intel's quarterly dividend was 11.25 cents per share and it has increased it almost annually. Today, the quarterly dividend is 22.5 cents, so in about 5 years the payout has roughly doubled. As income investors know, a rising dividend is very important and over time that can drive the share price higher.
2) After a big decline in the share price, Intel might not have a lot of downside at just about $19. This stock looks washed-out and it is probably seeing a fair amount of tax-loss selling right now as investors dump positions that they have losses in, so they can offset profits in others. Investors should consider buying Intel in stages over the next four weeks or so, in order to take advantage of the seasonal tax-loss selling. When 2013 rolls around in just weeks, the tax-loss selling will be over and Intel might enjoy a rebound into January. This is often called the "January Effect" and it presents investors with a unique buying opportunity.
3) Intel has a strong balance sheet which adds security to the dividend payout. It also allows the company to have the financial resources to invest in research and development. Intel has been investing to develop mobile processors and this could lead to improved growth prospects as smart phones and tablets become increasingly popular. Intel plans to launch new mobile chip processors like the Core i5 and i7 CPUs, in the first quarter of 2013.
There is no question that additional downside is possible if the global macro-economic picture weakens or if PC sales lose more ground than expected to tablets. However, a lot of bad news is already priced into the stock at just $19, and even though it could take time for more robust growth to return, investors are being paid generously to wait for a higher share price. On November 23, analysts at Argus reiterated a buy rating on Intel and set a $25 price target. If that target is reached, it would provide about a 25% upside, on top of the dividend income. That sure beats letting cash sit around in a money market account, which is why Intel could be the perfect stock for income investors.
Here are some key points for INTC:
Current share price: $19.53
The 52 week range is $19.23 to $29.27
Earnings estimates for 2012: $2.11 per share
Earnings estimates for 2013: $1.96 per share
Annual dividend: 90 cents per share which yields 4.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.