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INTC: Undervalued With Huge Dividend Growth Potential

|About:Intel Corporation (INTC)

Intel (NASDAQ:INTC) stock has been pummeled since the company issued lower guidance on earnings based on low PC demand. No shareholder lkes to hear about lower earnings and have EPS lowered for a stock they hold, but for dividend growth investors this negative press offers a tremendous buying opportunity for a high quality stock with tons of room to grow.

Electronics are a part of life, and INTC is a market leader in the chip industry. EPS were originally estimated to come in around $2.35, which at the current share price would give INTC a P/E of 10, granted the company has come out with guidance lately saying that EPS will come in below initial estimates due to soft demand. Based on this soft demand, some analysts have predicted that EPS could come in as low as $2.00 per share. With EPS at $2, and a current dividend rate of $.90 per share the dividend appears to be more than covered by cash flow, and even has significant room to grow.

Demand for PCs has declined with the rise of smartphones and tablets that can perform many of the tasks we used to use computers for. Even with that, the PC is still the primary tool on which business is performed. Demand for PCs will likely pick up significantly as the economy and hiring come back, albeit that could take a while. Intel is the market leader for chips in the PC market of other competitors like AMD and TI, and has begun making inroads into the world of smartphones and tablets.

With the size and scale advantages of Intel, and the current dividend yield of 3.85% I would be more than willing to ride out a couple quarters of soft demand in the PC market while gaining market share in the tablet and smartphone arena with Intel. With a dividend growth rate in the high teens and a well covered dividend, I believe that INTC may reward patient shareholders over the coming years with significant dividend growth and share price appreciation first returning a fair valuation followed by continued growth in line with the broader market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Stocks: INTC