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Usually technology stocks are not associated with a defensive portfolio. Usually the sector also lacks high dividend yields (if any at all). However, as the industry moves into the maturity stage of development, some of the leading tech companies have begun to pay out dividend yields. Businesses and consumers have also grown dependent on the products of technology companies that have been well integrated into everyday life.

With what is likely a rough patch in the market over the summer, I like holding Intel (NASDAQ:INTC) as a defensive stock, because of its strong financials and yield, its nearly monopolistic control of the microprocessor market, and growth in demand for personal computers in emerging markets.

Financially, Intel is in much better shape than its competitors and many other traditional defensive stocks. First, Intel has loads of excess of cash. Cash holdings are approximately 5% of sales, which is significantly more than the amount the company needs for operations. This excess cash gives Intel the ability to expand research and development, pay out a higher dividend, or finance growth via acquisitions. Intel has miniscule debt levels (0.05 debt/equity ratio) and the company pays out a high dividend yield of 3.82%. Despite entering its maturity phase, earnings growth expectations still average 11.1% over the next five years. In addition, having a 24% return on investment capital indicates that Intel is well managed and utilizes its resources efficiently.

Intel also holds a strong monopoly for its main product of micro processors. As of Q1 2011, Intel controls 80% market share and despite a recent motherboard recall, has gained market share on its main competitor AMD. Unlike other semi-conductor companies, Intel has brand recognition and is known by computer consumers for high processing speeds and quality. Although semi-conductors is a cyclical industry, personal computers will need to be replaced on a semi-regular basis throughout the world. This need stabilizes long term demand. Accessing the Internet or working on office projects on a computer has become a need as ubiquitous as basic utilities such as electricity in the developed world and computer use has growing imporatance in developing markets.

The third strong point for Intel is its geographical diversification and growth in emerging economies. Critics of Intel argue that the company has failed to embrace cloud computing and the smart phone/tablets market, and this will prevent future growth. Tablet sales may take away a small piece of PC sales, but tablets and smart phones cannot fully replace a computer for more complex computing needs for individuals and businesses. Also in emerging economies, consumers will first buy a personal computer before jumping straight to an iPhone (NASDAQ:AAPL) or an iPad. Asia and Pacific region (excluding Japan) sales jumped from 26% of revenues in 2000 to 57% of revenues in 2010. As a result, the emerging market consumer has been able to carry Intel through shrinking demand in the Americas and Europe.

Overall, Intel is a good alternative to traditional consumer staples and utility stocks as a defensive investment. With a dominant market share in its primary product, strong financial health, and growth in Asia and Latin America, Intel will continue to perform despite fluctuations in the economy.

Intel may not be the best investment for growth-oriented investors. On a discounted cash flow basis, it's worth about $30 per share, which is a slight value compared to its current price. Technical indicators, however, look strongly bearish, so I would not buy it until it falls below $21 per share. Nevertheless, I think this stock is an excellent pick to preserve capital and for income investors to gain some profits from dividend growth and payouts.

Source: Intel: A Defensive Tech Stock