Sometimes misconceptions or preconceived notions that we associate with companies can cause us to miss out on a solid investment opportunity. Below I’ll examine three companies that investors may not completely understand, in hopes of shedding some light on their prospects for future capital appreciation and dividend growth.
#1 – Intel Corp. (NASDAQ:INTC)
Many have declared the death of the PC inevitable due to the recent advances in smart phones, tablets, etc. The perceived imminent doom of the PC has led to some uncertainty about the future of the chip giant Intel Corp. Many people associate the computer processors and chips produced by Intel exclusively with PCs; however, this is a mistake. Intel has kept up with the times by developing chips and processors that are used in more mobile devices from smart phones to cars. As PC sales have slowed, demand for Intel products has remained strong and seen significant growth. According to Market Edge Research, Intel’s sales from the previous quarter rose to $12.85 billion, an increase of 24.74%.
Intel remains one of the best dividend stocks in the technology sector, currently offering investors an annualized yield of 4.04%. The company has demonstrated a commitment to raising its yield, increasing its dividend to investors by 33.33% last year and by an average of 16.00% annually over the previous five years. The semiconductor giant has a market cap of over $110 billion and looks to be a solid investment for the foreseeable future, boasting an above-industry, average profit margin of 22.53%, a strong balance sheet with limited debt, and proven management.
At its peak back in 2002 and 2003, Intel stock traded for just over $34 per share, but it is currently trading slightly below $21 per share. Despite this substantial dip that has lasted nearly a decade, investors ought to be excited about the prospect of resurgence for Intel. Since the stock market turmoil that began in 2008, Intel has built up its cash reserves and is now ready to put them to work. The company has plans to spend approximately $10 billion buying back shares and has committed significant funds towards research and development in order to stay competitive and continue to innovate.
Intel pays dividends to investors in February, May, August, and November
#2 – Whirlpool (NYSE:WHR)
The unfortunate reality for appliance makers such as Whirlpool, and other companies that rely on consumers purchasing big-ticket items, is that the U.S. economy has been hamstrung in recent years by everything from the housing crisis, upheaval in the Middle East, and uncertainty surrounding the nation’s debt ceiling. Consumer confidence is low and budgets are tight, meaning that fewer Americans are in the market for new appliances. However, despite Whirlpool’s struggling sales in the United States, business is booming in other locations.
Following legislation that provided federal tax credits for first time home buyers and those purchasing energy efficient appliances, Whirlpool’s earnings in 2010 nearly doubled, exceeding $619 million, or $7.97 per share. Although Whirlpool claims that earnings of $12 or $13 per share are within their reach for 2011, skeptics fear that the expiration of federal tax credits will not allow Whirlpool to maintain its momentum and increased sales from recent years into the future. While this is certainly a possibility, there are reasons to believe that Whirlpool can prolong its recent success. Although the company’s sales in the developed regions of North America and Europe have slowed down, sales in developing nations and emerging markets, such as Latin America and Asia, are increasing at double-digit rates each year. The key to long-term success for Whirlpool will be cultivating its business in emerging markets in order to compensate for decreased sales in Europe and North America.
Whirlpool stock currently provides investors with an annualized dividend yield of 3.01%. The company’s recent earnings growth allowed them to increase their yield to investors by 16.28% last year, the first time the company has increased its dividend since 2004. The use of the company’s cash reserves is another reason to be optimistic about Whirlpool’s future. The company has devoted approximately $3.7 billion towards paying off long-term debt and funding pension obligations. In addition, Whirlpool has stated that it is focused on developing new appliances that are both increasingly energy efficient and appealing to consumers in emerging markets. Based on the company’s competent management and their commitment to developing their business in emerging markets, Whirlpool is worth any dividend investor’s consideration.
Whirlpool pays dividends to investors in February, May, August, and November
#3 – Xerox (NYSE:XRX)
The word Xerox may send chills down the spine of anyone who has ever done battle with a difficult printer or copier, but the assumption that Xerox is a company that does nothing but make printers and copiers is far from the truth. Xerox’s purchase of Affiliated Computer Systems in 2010 has transformed the company. The acquisition of ACS has provided Xerox with a top-notch services arm to its business in addition to its office products. Through ACS, Xerox now helps run corporate IT departments, companies’ benefits programs, etc. Approximately two-thirds of Xerox’s revenue now comes from the services it provides.
Xerox currently offers an annualized dividend yield of 1.99%, but with increasing revenues stemming from their new services you can expect that yield to increase in coming years. There are many strong blue-chip stocks that currently offer as high a yield or higher than Xerox; however, if you are looking for a stock that has the potential for capital appreciation in addition to a respectable dividend yield consider Xerox.
Xerox pays dividends to investors in March, June, September, and December
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.