Intel (INTC) announced its quarterly dividend today of $0.225/share. Again. While this yield isn't bad per se, the company just put an end to a winning streak of yearly dividend increases since 2003, and casting into doubt its status as a "dividend-growth" stock. While I'm not terribly surprised that 2013 didn't bring a substantial increase in the dividend, I'm quite shocked that Intel didn't even bother with a token increase of even just 1¢.
It's no secret that long-term Intel shareholders have taken their lumps and then some over the last two years as the PC market has softened and the company has been late to meaningful participation in the smartphone and tablet markets. The only thing shareholders have had to cling on to is the fact that the stock is paying us a hefty dividend to wait and was growing it at a regular clip. Even at today's prices, the yield is 3.81% which is pretty good for a large-cap tech - certainly better than what you'd get with HP (HPQ), Microsoft (MSFT), or Cisco (CSCO) at 2.74%, 3.42%, and 2.79%, respectively.
Of course, the catch 22 here is clear. If Intel's business were still growing its top and bottom lines, then in this bull market, dividend yield wouldn't really matter much - the stock would be trading at $30+ and everyone would be happy. But Intel's business right now is very sick and the only way it even has a shot at long term viability is to spend on things such as low power CPU cores, SoCs, and cellular modems.
The revenue from these efforts takes a while to show up, which means that for a while net income comes under pressure, as investors saw during 2012 and now 2013. When you're not growing your net income, you can't afford to raise your dividend meaningfully. Period.
In fact, with Intel expected to earn $0.54/share in this coming quarter, Intel's dividend payout ratio comes in at 41.67% - right around Intel's target of 40%. Now, while I do think Intel could have afforded to give investors a token 1¢ increase, the point remains that until Intel's business is posting consistent Q/Q and Y/Y revenue compares, the stock will remain range-bound and its dividend flat for all intents and purposes.
Is There Hope?
The bottom line is that I believe that Intel investors are really close to the end of the pain train. While I remain concerned that PC sales will fall faster than Intel can gain share in tablets and smartphones (and grow its datacenter business), I'm optimistic that as Haswell and Bay Trail based notebooks/convertibles finally roll out (and the Ivy Bridge inventory is burned off), the PC industry can begin to stabilize, allowing the datacenter, tablet, and smartphone growth to more clearly shine through.
I'm remaining long the stock and LEAPs, and with the new product rollouts just around the corner, I'm still optimistic that the dividend increases will return in full force during 2014.