Intel Corporation (INTC) is one of the technology stocks that have had a slow start to the year. The stock has lost 0.23% since the start of the year. However, if you are a long-term investor; you do not need to be worried about the future growth and return. The company has ruled the global market for almost two decades; however, more recently, the growth of the company has stalled due to a shift in consumer preferences. At the moment, the global PC market is going through a period of decline and customers are moving towards mobile devices. As a result, companies operating in the industry have suffered.
Intel has also been a victim of declining global market, and the stock has also shown sluggish movement. However, it does not mean that Intel is a bad investment right now. There are many positives for the company in the future, which make Intel a solid long-term investment.
Dividends: Impressive and Growing
Intel's dividends have been growing on a consistent basis since 2004. The company pays an annual dividend of $0.90 per share, which puts its dividend yield at 4.15% based on the closing price on Friday, March 22. Intel has been spending a massive amount of cash in capital expenditures and growing its dividends at the same time. Over the past three years, capital expenditures of the company have more than doubled. Intel's ability to increase capital expenditures along with dividends shows the financial strength of the company. Despite slowing growth, the company has shown an impressive trend in cash flows from operations. Although operating cash flows fell from $20 billion at the end of 2011 to $18.8 at the end of 2012; the average growth rate in operating cash flows over the two years has been over 13%. An increase in operating cash flows despite slow growth indicates how well the company is managing its operations.
However, while evaluating dividends, we are more concerned with the free cash flows of the company. Despite increasing capital expenditures, Intel has been able to generate impressive free cash flows. During 2012, the technology giant paid $4.35 billion in cash dividends, and reported $7.85 billion in free cash flows. Intel's payout ratio based on free cash flows is just above 55%. Payout ratio for the company has gone up substantially over the past two years due to an increase in capital expenditures-however, it still remains easily manageable, and allows the company to grow dividends in the future.
Future Growth Prospects
PC segment revenues fell for Intel, but there was strong growth in data center revenues. This segment is growing at the fastest pace at the moment, and the company expects strong growth in future from the data center segment. Furthermore, Intel is trying hard to capture a large portion of the mobile market. Strong R&D and efficient chips have always been the strength of Intel, and the company is using its expertise to introduce energy-efficient chips. Furthermore, the company is trying to attract customers towards Intel powered tablets.
Ultrabooks were not able to impress in 2011; however, the company is changing its strategy to increase sales of Ultrabooks in the future. A lot of future Intel-based Ultrabooks will be touch enabled, and the company is also planning to launch convertible Ultrabook designs. At the moment, convertible models are becoming popular with customers, and the company is focusing on developing convertible and detachable Ultrabooks.
Intel has its own design and manufacturing facilities, which allow the company a lot of freedom and makes it less dependent on other manufacturers. In July last year, Intel invested over $4 billon in ASML Holdings (ASML), which will help the company have access to new technology and accelerate the manufacturing process. Furthermore, Intel's recent capital expenditures in different technologies will help the company grow well into the future.
There are not many stocks in the technology sector that offer such growth and income opportunity. As I have mentioned above, the company will continue to reward its investors in the shape of juicy dividends. On the other hand, Intel's efforts in the mobile market will allow the company to grow well into the future. At the moment, I believe Intel's stock is attractively priced at P/E ratio of 10. Intel is a buy at these price levels. However, an investment in Intel should be made for the long term.