Intel: Textbook Case for Dividend Growth

While many income investors concentrate on the headline yield number, the optimal dividend-based strategy is hardly as simple as that.

Take for example Intel (INTC), a company that recently announced a 12.5% dividend hike. Even after this impressive percentage increase, the stock yields (on Friday's closing price of 22.1) a modest 2.04%. This is not the kind of number that makes you go "Oh!", but Intel nevertheless is a solid dividend investment.

The point, you see, is not current yield, but rather the net present value of the future stream of dividends. Intel may still yield a "measly" 2% 10 years from now, but more likely than not those 2% will be many more dollars and cents than they are today.

Somewhere along the way there will be capital gains made, too. Of course all this depends on the viability of the company and the business model: You have to believe they'll still be making the chips that go into everybody's PCs 10 years from now, which I, for one, do.

Full Disclosure: Author is long INTC