After beating analysts' expectations by a small margin in its first-quarter 2014 earnings report, Intel Corporation (NASDAQ:INTC) stock has shown some small gain. Since the beginning of the year, Intel stock has risen 3.9%, while the S&P 500 index has risen 1.3% and the Nasdaq Composite Index has declined 1.3%. Nevertheless, since the beginning of 2013 Intel stock has risen only 30.7%, while the S&P 500 index has risen 31.3% and the Nasdaq Composite Index has risen 36.5%. In my opinion, Intel has plenty of room to move up. Furthermore, it returns value to its shareholders through growing dividend payments and stock buybacks. In this article, I will explain why Intel stock is a remarkably promising long-term investment.
After being for many years a strong growth stock, Intel has turned into a classical value stock in the last years; a low P/E ratio, a small debt and a strong, growing dividend payment. Just as it is, in my opinion, Intel stock should be a part of every diversified long-term dividend stocks portfolio. Furthermore, Intel has an ambitious program to gain market share in the strong growing mobile market, a field that the company has practically ignored for many years. Since Intel has strong financial and technological resources, there is only a little doubt that it could reach its goal. By gaining a strong position in the mobile market, Intel would be a strong growth stock again.
Latest Quarter Results
Intel announced its first-quarter earnings report on April 15, which beat EPS expectations by $0.01 (2.7%). The company reported first-quarter revenue of $12.8 billion, operating income of $2.5 billion, net income of $1.9 billion and EPS of 38 cents. The company generated approximately $3.5 billion in cash from operations, paid dividends of $1.1 billion, and used $545 million to repurchase 22 million shares of stock.
In the report, Intel CEO Brian Krzanich said:
In the first quarter we saw solid growth in the data center, signs of improvement in the PC business, and we shipped 5 million tablet processors, making strong progress on our goal of 40 million tablets for 2014. Additionally, we demonstrated our further commitment to grow in the enterprise with a strategic technology and business collaboration with Cloudera, we introduced our second-generation LTE platform with CAT6 and other advanced features, and we shipped our first Quark products for the Internet of Things.
Intel has been paying uninterrupted dividends since 1993. The forward annual dividend yield is quite high at 3.30%, and the payout ratio is at 48%. The annual rate of dividend growth over the past three years was high at 12.6%, over the past five years was also high at 10.5%, and over the past ten years was very high at 27.4%. I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most crucial factors for dividend-seeking investors, and INTC's performance has been impressive in this respect. Since the company generates lots of cash, has a low debt and the payout ratio is relatively low, there is an excellent chance that the company will continue to raise its dividend payment.
According to Portfolio123's "ValueSheet" powerful ranking system, Intel stock is ranked sixth among all S&P 500 stocks. Only Oracle Corporation (NYSE:ORCL), Microchip Technology Inc. (NASDAQ:MCHP), EOG Resources, Inc. (NYSE:EOG), KLA-Tencor Corporation (NASDAQ:KLAC) and Helmerich & Payne, Inc. (NYSE:HP) are ranked higher. The "ValueSheet" ranking system is quite complex, and it is taking into account many factors like; valuation ratios, profitability ratios, financial strength ratios, asset utilization, growth rates, dividend information and industry leadership.
According to Tip Ranks, a website which ranks analysts and bloggers according to their performance, analysts are wrong 50.2% of the time on Intel. On April 11, Stifel Nicolaus's analyst Kevin Cassidy reiterated a Buy rating on Intel and raised his price target to $30 from $28, writing that "We have lowered our FY15 operating expense estimates for Intel to reflect a cost increase rate of half our estimated revenue growth," which he regards as positive. I consider Mr. Cassidy's analysis very valuable, since he has 5-Star rating from Tip Ranks for the accuracy of his previous calls.
Intel has compelling valuation, and it returns value to its shareholders by stock buyback and by growing dividend payments. According to the company, it sees signs of improvement in the PC business and is making strong progress on the company goal of 40 million tablets for 2014. Intel has an ambitious program to gain market share in the strongly growing mobile market. Furthermore, According to Portfolio123's "ValueSheet" powerful ranking system, Intel stock is ranked sixth among all S&P 500 stocks.
All these factors lead me to the conclusion that INTC stock is a smart long-term investment.
Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.