Intel Corporation (INTC) designs manufactures, and markets microprocessors for desktops, notebooks and computer servers. It is number one in the world for the design, manufacture and sales of semiconductors and micro-processors for industrial, medical, and in-vehicle information and entertainment markets. For investors, its yield is no longer something to dismiss.
While growth of the personal computer market has slowed in Europe and the U.S. because of the advent of various tablet offerings, the growth of the personal computer market is still alive and well in the Asia- Pacific market. The Asia-Pacific region generates almost 60% of INTC’s revenue. Growth in the emerging markets should help drive strong revenue and earnings growth at Intel for years to come.
Intel recently revised revenue expectations downward by $1 billion citing flooding in Thailand. Intel isn't directly affected, however, Thailand has a large portion of the hard disk drive market. This bottleneck affects suppliers of other components, including INTC, which are seeing reduced demand for chips because net inventories of finished computer products will fall due to the hard drive shortage.
INTC shares are currently trading around $24 and the mean 12 month price target from analysts covering the stock is $26.66. Earnings per share of $2.31 for the 12 months preceding the fiscal year end place the shares on a trailing price to earnings ratio of 9.77 and a forward multiple of 9.77. The earnings figures place it lower among competitors such as Advanced Micro Devices (AMD) at 3.94 and Texas Instruments Inc. (TXN) at 12.48.
INTC’s price earnings ratio indicates that the stock price is not inflated to the extent that it impacts earnings. In addition, the stock price of Intel does not demonstrate the volatility of AMD (year low of $4.31, high of $9.58) or TXN (year high of $36.71 and low of $24.34) or ARMH which yearly trading range is $18 to $32.
ARM Holdings (ARMH), is the dominant player in the provision of low power chips to smart-phones. The stock trades around $27.00, has a year high of $32.18. The year low is $18.17. ARMH has a five year annual dividend yield of 1.00%. The stock has earnings per share of $0.38 and a trailing twelve month price earnings ratio of 70.98.
Intel announced plans to enter into the low power chip business for the smart-phone market with a chip that will use 20% less power than the current low power chips available. Low power chips in the smart-phone market are a mainstay of consumer satisfaction. ARMH’s specialty has been the low power, long life chips in smart-phone use. Intel’s new upcoming Ivy Bridge chips should limit power consumption in a way that is disruptive to ARMH’s 95% market share of the smart-phone market. SuVolta, is a private California low power semi-conductor chip designer and manufacturer. Its new PowerShrink® chip platform and Deeply Depleted Channel® design could provide formidable competition to both Intel and ARMH, which may result in INTC acquiring SuVolta to have an immediate and reliable foray into the smart-phone market.
Intel’s major strength is its ability to produce high profits in its traditional processor and chip business to support its high dividend yield. Its available cash and access to quality personnel will enable it to dedicate enough human and hard capital to compete in the smart-market in a significant manner which may prove successful in the long term.
Intel has paid consistent dividends in the past 10 years increasing its average annual rate by 25%. The dividend has risen from $0.02 per share in 2001 to $0.21 per share in 2011. The dividends have all been paid in cash. AMD does not pay a dividend. TXN’s dividend history since 2001 has paid a consistent $0.02 - $0.08 per share increasing in the current 2011 dividend of $0.17. ARMH paid one special dividend ($0.064) in its history in September, 2011. Price earnings growth for the projected five year period of INTC is 0.94, TXN’s five year PEG is 2.20 and AMD’s five year PEG is 1.10. PEG is unavailable for ARMH.
Intel’s core business generates tremendous amounts of free cash flow that it uses to pass on to shareholders through share buybacks and dividend hikes.
In the latest quarter, Intel spent a $4.0 billion repurchasing 186 million shares of common stock. The company has over $14 billion authorized under its stock buyback program which should have a positive impact on earnings per share. In addition, it protects the dividend to the extent that a smaller float allows for more cash distributions.
INTC delivers solid earnings performance, low share price volatility and has consistently paid and grown its common share dividend for a period of 10 plus years. While its stock performance may be less exciting than its competitors, its measured approach to entering the smart-phone market, ability to deliver consistent and impressive profits from its core processing business and low key but noticeable presence in competitive markets make this a stock to invest in for its stable dividend yield.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.