In the dividend report card series, we analyze financial metrics to begin answering the following questions about a company's dividend:
- Over time, has this company steadily increased its payouts?
- How sustainable is the dividend?
- Does the company have room to further increase the dividend?
For a full explanation of each category, click here for a tutorial.
Today's pupil is Intel
Dividend history
|
Metric |
5-Year Annualized Growth Rate |
|---|---|
|
Dividend per share |
19.9% |
|
Diluted earnings per share |
5.1% |
Source: Capital IQ, a division of Standard & Poor's.
Intel's capital return has been -26.4% over the past five years, so the increasing dividend has been quite welcome to long-term shareholders. In fact, if you had reinvested the dividends over this period, your loss would have been "only" -16.4%. As Intel's business enters its mature growth stage, it's encouraging to see it paying out more cash to shareholders in the form of dividends.
Sustainability
|
Metric |
Trailing 12 Months |
Final Grade |
Report Card Score
|
|---|---|---|---|
|
Interest coverage |
13,821 times |
10% |
5 |
|
EPS payout ratio |
34.8% |
10% |
5 |
|
FCFE payout ratio |
39.9% |
30% |
5 |
Source: Capital IQ, as of Aug. 12, 2010.
That interest coverage ratio figure is not a typo -- Intel only paid about $1 million in interest over the past 12 months while generating $13.82 billion in operating profit (EBIT). Suffice it to say, then, that Intel has a very strong balance sheet, fortified with $5.5 billion in cash. Intel also generates more than enough cash flow and profits to cover its current dividend, so the dividend seems quite sustainable.
Growth
|
Metric |
Trailing 12 Months |
Final Grade |
Report Card Score |
|---|---|---|---|
|
EPS payout ratio |
34.8% |
10% |
4 |
|
FCFE payout ratio |
39.9% |
20% |
4 |
|
Sustainable growth rate |
14.6% |
10% |
5 |
Intel is in pretty good shape to keep raising its dividend over the next five years. In fact, Wall Street analyst consensus currently pegs Intel's five-year earnings growth rate at 10%, which would put 2015 earnings per share at roughly $2.76. If the dividend were to grow at, say, 15% per year over that period, it would amount to about $1.27 per share, or a 44% earnings payout ratio. That's well within the realm of possibilities.
Competitors
An "ungraded" section of the dividend report card is to see how a stock's current yield stacks up against direct competitors'. If it's too high relative to competitors' yields, the board could be tempted to slow the growth rate, or vice versa, to bring it more in line with the industry average.
|
Company |
Dividend Yield |
|---|---|
|
Texas Instruments |
1.9% |
|
Analog Devices |
3.0% |
|
Maxim Integrated Products |
4.9% |
With its current yield at 3.2%, Intel's dividend yield doesn't seem too high or too low relative to competitors.
Pencils down!
With all the numbers in, here's how Intel's dividend scored:
|
Weighting |
Category |
Final Grade |
|---|---|---|
|
10% |
History |
5 |
|
Sustainability |
||
|
10% |
Interest Coverage |
5 |
|
10% |
EPS Payout Ratio |
5 |
|
30% |
FCFE Payout Ratio |
5 |
|
Growth |
||
|
10% |
EPS Payout Ratio |
4 |
|
20% |
FCFE Payout Ratio |
4 |
|
10% |
Sustainable growth |
5 |
|
100% |
Total Score (Out of 5) |
4.7 |
|
Final Grade |
A |
Intel has a lot going for it right now. As our Motley Fool Inside Value team recently noted about the last quarter's earnings: "The best quarter ever -- that's what Intel delivered with small business and enterprise demand-powered sales. The company hit records with revenue up 34%, and a gross margin of 67%."
So if you've been thinking about adding a high-yielding technology company to your portfolio, Intel is a great place to start your search.
