Intel Offers Conservative Investors An Intriguing 3.3% Dividend

| About: Intel Corporation (INTC)

Intel Corporation (NASDAQ:INTC) offers conservative dividend investors a compelling 3.3% dividend yield. In a world of low Treasury Bond rates, Intel offers a solid dividend for a conservative portfolio. Intel is a dominant leader in the semiconductor manufacturing space and has held this position for over 3 decades.

Founded in 1968, Intel Corporation is the world's leader in semiconductor manufacturing, research and innovation. Intel develops and sells advanced digital computing and communications technology products such as microprocessors, chip sets, integrated circuits, and wireless and wired connectivity products. The company has two primary business units - the PC Client Group (PCCG) and the Data Center Group.

More recently, Intel has been making a strong push to provide chip sets for smart mobile phones from leading makers such as Motorola - a market which holds tremendous potential and virtually guarantees success given Intel's dominant position in the semiconductor space.

Intel employs 82,500 employees of which 55% are based in the U.S. It is listed on the NASDAQ and its shares are a core holding of most blue-chip portfolios, both for their appreciation potential and for the regularity of their dividend stream. Long-term holders of Intel have benefited very richly from their Intel holdings.

Business Objectives

Intel's business objectives are to grow its personal computer unit and data center units. Management plans to increase new users and uses. This is expected to expand Intel Solutions to capitalize on market opportunities in complementary markets, to create a continuum of secure personal computing experiences, and to do all of the above in a manner which cares for its people, cares for the planet, and inspires future generations positively. Intel's core values include a customer and results orientation, providing a great workplace environment, focusing on quality, being disciplined in the way it runs its business and on selective, well thought out, affordable risk taking.

Financials

Intel continues to defy expectations and has warded off various attempts to unseat it as the world leader in chip sets and related products and services. Over the past 10 years, Intel has grown revenue from $26.5 billion in 2001 to $43.6 billion in 2010 at a constant annual growth rate of 5.7%. While that may not sound impressive per se, it is very difficult to achieve such growth from a revenue base of $26.5 billion. In parallel, Intel has grown earnings per share from $0.86 in 2001 to $2.05 in 2010 at a growth rate of 10.1% - so earnings growth has been almost double its revenue growth, which underscores Intel's efforts to maximize operating efficiencies and reduce costs as it scales.

More recently, for the September 30th quarter, Intel reported record revenue and profit, with a $3.1 billion year-over-year increase in revenue fueled by double digit PC unit growth and Data Center strength. Additionally, Intel increased its share buyback authorization by $10 billion. Revenue for the quarter rose to a record $14.2 billion, up 28% year over year. Operating margin came in at a record $5.1 billion, up $895 billion and 22% year over year. Quarterly net income too broke past records, coming in at $3.5 billion, up $513 million with a 17% increase year over year. Q3 2011 earnings per share was a record 65 cents, up 13 cents and 25% year over year.

On the balance sheet, Intel ended the September 30th quarter with $7 billion in cash and $3.8 billion in short-term investments, and $70.5 billion in total assets. Intel carried $7 billion in long-term debt and $46.1 billion in stockholders' equity.

Dividends

Intel has consistently paid and grown its dividends, from 40 cents per share in 2006 to 63 cents in 2010. With Intel shares trading in the $25.39 range, Intel shares carry a 3.3% dividend yield. Additionally, in Q3 2011, Intel paid out $1.1 billion in cash dividends and used $4 billion to repurchase 186 million shares, which effectively increased the value of outstanding shares. The annual dividend quarterly stands at 84 cents per share.

As of January 18, 2012, Intel shares closed near $25.39 range with a price-to-earnings ratio of 10.8x and a market capitalization of $127.5 billion. Over the past five years, Intel shares have traded from a low of $12.40 to a high of $26. At $25.39 as of today, shares are close to a five-year high. Intel shares do fluctuate, almost in lockstep, with the broad market and there could well be strong buying opportunities down the road to add Intel as a dividend and capital appreciation stock.

Intel is a deeply entrenched player in the growth of personal and corporate computing. Demand for PCs, laptops, mobile devices and business computing and communications equipment generally fluctuates with prevailing economic trends, which also impact Intel's revenue and earnings. However, with its dominant position in the semiconductor space and its strong push into mobile computing, tablets and smartphones, Intel will continue to play a leading role in computing and communication in the years ahead. Intel has stable revenue and earnings and seasoned management, not to mention institutional investors and shareholders who love this stock.

In addition, Intel has tremendous geographical diversity in its revenue, with Asia Pacific bringing in 57%, Americas 20%, Europe 13% and Japan 10%. As emerging economies grow, their appetite for computing devices, PCs, laptops, tablets, smartphones and wireless equipment should strongly drive Intel's revenue and earnings. Through its innovation, Intel continues to be a very compelling growth story, uniquely combined with a blue-chip heritage.

Competition

Intel competes with Advanced Micro Devices (NYSE:AMD), Texas Instruments (NYSE:TXN), Broadcom (BRCM) and specialized chip makers such as Altera (NASDAQ:ALTR), Analog Devices (NYSE:ADI), Marvell Technology (NASDAQ:MRVL), Nvidia (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU). That said, Intel is far and away the 800 pound gorilla in this space. Intel's biggest challenge, however, is to innovate and compete with newer players that emerge to capitalize on various newer market opportunities.

Advanced Micro Devices, Inc. Co

Advanced Micro Devices has been the premier competitor to Intel since the 1970s. The company is a semiconductor design innovator leading the next era of vivid digital experiences with its ground breaking AMD Fusion Accelerated Processing Units (APUs).

Taiwan Semiconductor (TSM)

The company provides computer aided designing, manufacturing, packaging, testing, in addition to selling integrated circuits and other semiconductor devices. Taiwan Semiconductor filed its quarterly results January 18th. The company year-over-year fourth quarter revenue decrease of 4.9% while both net income and diluted earnings per share decreased 22.5%.

Micron Technology, Inc.

Micron manufactures and markets (pdf) semiconductor devices worldwide. Its products for data storage and retrieval comprise dynamic random access memory (DRAM) products, include DDR2 and DDR3 for use as main system memory in computers and servers. The company is based out of Boise, Idaho, with 26,000 employees. The company does yield a compelling 3.1% dividend.

Microchip Technology (MCHP)

Microchip Technology is actively involved in the design, development, manufacturing of semi conductor products for embedded control applications. The company has a 3.8% dividend yield. This is the highest yield within this sector.

Action

Intel is a very compelling core portfolio holding - for its intrinsic stock stability and growth potential, and for its consistent dividend stream - all driven by an extensive franchise in a still rapidly growing semiconductor field in emerging and mature markets worldwide. Few technology companies have the kind of global reach and dominance that Intel has managed to establish for its products and services.

Intel is a deeply entrenched player in the growth of personal and corporate computing. Demand for PCs, laptops, mobile devices and business computing and communications equipment generally fluctuates with prevailing economic trends, which also impact Intel's revenue and earnings. However, with its dominant position in the semiconductor space and its strong push into mobile computing, tablets and smartphones, Intel will continue to play a leading role in computing and communication in the years ahead. Intel has stable revenue and earnings and seasoned management, not to mention institutional investors and shareholders who love this stock.

In addition, Intel has tremendous geographical diversity in its revenue, with Asia Pacific bringing in 57%, Americas 20%, Europe 13% and Japan 10%. As emerging economies grow, their appetite for computing devices, PCs, laptops, tablets, smartphones and wireless equipment, should strongly drive Intel's revenue and earnings. Through its innovation, Intel continues to be a very compelling growth story, uniquely combined with a blue-chip heritage.

Intel provides a compelling 3.3% yield in this current low-yield environment. The company has a clean balance sheet with a 4% debt level. The company is the industry leader. This is a conservative play if you put a tight stop on the equity. I recommend a $24.42 stop loss price. Every investment should have a plan of action in the case of price per share deterioration. Let other investors be the heroes.

I don't own Intel because I believe I achieve higher net returns with other stocks and investments. For a conservative portfolio, I highly recommend Intel with a $24.42 stop loss. This represents an exit strategy in the event Intel breaks its 50-day moving average.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.