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While many investors seem to loathe Hewlett-Packard (HPQ) shares due to what some feel is a boring company product line and a lack of significant revenue growth, a new class of investors might soon be taking more notice of the stock and buying it up, while it is still a bargain. It trades for less than 5 times earnings and for close to book value, which is $16.03 per share. Here is why income investors should be considering the stock now, and how those who buy at current levels could end up with a yield of more than 10%, over time:

At HP, the quarterly dividend was 8 cents for a number of years, but since early 2011, it has seen a dramatic rise to 13.2 cents per quarter. That's about a 70% rate of growth in the dividend, in just the past couple of years. Around June of 2011 and 2012, Hewlett Packard has raised the dividend so there appears to be a clear focus to return capital to shareholders. Just to compare, in the past couple of years, Microsoft (MSFT) has raised the dividend from 16 cents (in June 2011) per quarter to 20 cents today. That's about a 25% rate of growth, which is not bad, but nowhere near HP's almost 70% growth rate.

With the annual dividend currently at 53 cents per share, the yield is now at about 3%. That is already better than average, especially for a tech stock. But what is even more interesting is that based on earnings estimates, HP has significant room for further dividend increases. With annual earnings estimates of about $4 per share and the dividend at just 53 cents, the payout ratio is just around 12.5%. Compare that to Intel (INTC) which has become a dividend favorite in the tech sector and it's easy to see why income investors might start snapping up HP shares. Intel trades for just over $24 per share and it offers a 90 cent annual dividend which works out to a 3.6% yield. Intel's earnings estimates are just about $2 per share, and that puts the payout ratio at a much higher level of almost 50%, versus about 12.5% for HP. If Hewlett Packard were to gradually raise the dividend to a payout ratio that is similar to Intel's, it would pay about $2 per share and that would give investors buying now a yield of over 10%! Like Intel, HP is a more mature tech company, and investors who recognize the early signs of a focus on annual dividend increases and the financial ability for a much higher payout ratio could end up with big dividends and capital appreciation in the coming years.

Here are some key points for HPQ:
Current share price: $17.42
The 52 week range is $16.77 to $30
Earnings estimates for 2012: $4.06 per share
Earnings estimates for 2013: $4.20 per share
Annual dividend: 53 cents per share which yields 3%

Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
advisor.

Source: How Investors Who Buy Hewlett-Packard Could End Up With A 10% Yield