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Monday, January 14, 2013

Recent Buy: INTC

Jan 8, 2013: Bought 120 shares of INTC at $21.21 per share.

Intel Corporation (INTC) is an American multinational semiconductor chip maker corporation with headquarters in Santa Clara, California. Intel makes motherboard chipsets, network interface controllers and integrated circuits, flash memory, graphic chips, embedded processors and other devices related to communications and computing. It is the world's largest and highest valued semiconductor chip maker, based on revenue.

With its streak of 9 consecutive years of dividend increases, INTC is a Dividend Challenger, though it could become a Dividend Contender if the dividend is increased again this year. INTC currently pays quarterly dividends of $0.225 per share.

Fair value estimates for INTC vary from $22.93 (Graham Number method) to $24.00 (S&P Capital IQ) to $27.00 (MorningStar). The current price of $22.00 is discounted by about 5% to the median of these estimates ($24.00), as required by my stock selection criteria.

The following table provides some key statistics for INTC, with highlighted values relating directly to my stock selection criteria.
I use a simplified version of the Chowder Dividend Rule as one of my selection criteria. If the sum of the dividend yield and the 5-yr dividend growth rate is greater that 12%, the stock should present a good entry point. For INTC, the sum is 18.19%.

For INTC, I used the EPS Payout Ratio to verify that the dividend payout ratio is below 65%: EPS Payout Ratio is 0.90/2.29 = 39.3%.

The Debt to Equity Ratio of INTC is 15%, well below my 50% limit.

My 7-yr weighted average dividend growth rate for INTC, which favors more recent dividend increases, is 14.65%.

I require a 5-yr total payback percentage of at least 16%. Assuming no further dividend increases, the 5-yr total payback percentage equals (500*0.9)/22.0 = 20.45%. Should INTC increase its dividends by the 14.65% growth rate above, the 5-yr total payback percentage would increase to 27.39%.

INTC passes all my selection criteria and earns 7 stars: (*******)

Other ratings for INTC

(see Recent Buy: CVX for details on these ratings)
S&P Capital IQ's Stock Report(*****)Hold 
Thomson Reuters StockReport+ (8/10)
MorningStar Rating(*****)
The Motley Fool's CAPS Rating(*****)

Final Remarks

There are uncertainties around INTC and the future of PC markets in which INTC has a dominant position. INTC is looking for a new CEO because the current CEO has decided to retire early. There are questions around INTC's strategies for mobile and cloud computing, and whether it can continue to grow and maintain its margins.

On the positive side, INTC is an iconic brand with a near monopoly in the microprocessor market. It has a lot of cash on hand and pays a hefty and sustainable dividend. INTC is selling well below its historic P/E multiple. And the beaten down technology sector is now being overweighted by analysts, which should benefit INTC.

This purchase adds $108 of expected dividend income to DivGro for the 2013 calendar year, an amount which should increase when INTC announces its next dividend increase.

Full Disclosure: Long INTC

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