Do Amazing Technology and Enormous Dividends Make Intel a Buy?

When you look at Intel (Nasdaq: INTC  ) , it's all too easy to think that you're dealing with an aging, dividend-spouting giant with its best days already behind it. Consider:

  • Advanced Micro Devices (NYSE: AMD  ) has out-innovated Intel's much larger R&D department over the past decade. For example, it was AMD that introduced 64-bit computing to consumers and AMD's 64-bit instruction set that became the standard when Microsoft (Nasdaq: MSFT  ) designed the next generation of Windows software. What has Intel invented lately, other than hyper-efficient chip-manufacturing methods?
  • The company is nearly absent from the mobile revolution. Ruling the PC world with an iron fist is nice, but that platform is fading as the next generation of computing is smaller and lighter and needs to consider battery drainage. How many Atom smartphones and tablets can you name? Zero? That's what I thought.
  • Arguably as a direct result, Intel's compound revenue growth over the past five years is an inflation-like 3.8%. Mr. Softy, which many investors (me included) are tagging as aging and spent, has produced 10% annual growth over the same period. Wouldn't that make Intel even older and more tired?
  • The company has focused on increasing dividend payouts and share buybacks lately. By contrast, other tech titans, such as Oracle (Nasdaq: ORCL  ) and Hewlett-Packard (NYSE: HPQ  ) , have gone on shopping sprees instead while keeping their dividends svelte. Has Intel given up on growth?

Not so fast!
But then you'd be making a terrible mistake. All four of those criticisms are turned on their head by an announcement from Intel last week: The next chip-making process will not only be smaller as always, but it's also done in 3D.

Put away the red and blue glasses -- this third dimension will be felt more than seen. Here's what it does to the bullet list above:

  • This is hardcore innovation at its finest. Intel decided to think outside the box and then sent the box off to be pulped and recycled. Ignoring highly technical mumbo-jumbo, these 3D chips will run faster and cooler on less electricity.
  • That makes the new chips just about perfect for mobile computing. If you're laughing at the Atom line now, you'll change your tune when the 22-nanometer, 3D-style Atom chips roll out. ARM Holdings (Nasdaq: ARMH  ) and MIPS Technologies (Nasdaq: MIPS  ) just saw a minor threat turn into a serious rival, and AMD has no response to this technology today.
  • Intel's five-year sluggishness masks a surge in the past few quarters, powered by highly capable Core chips that meet a rebounding enterprise-computing market. The 3D chips will also work great in server systems, where performance per watt is perhaps even more important than in mobile systems. This adds up to a continued surge that should make you forget the late 2000s rather quickly.
  • And of course, all of this was done while pumping billions of dollars into a tremendous dividend-and-buybacks policy. Intel doesn't have to choose between great R&D or great shareholder returns, because it has the budget to do both.

Buy Intel today, and you get one of the strongest and safest dividends around with tremendous growth opportunities to boot, all at less than 11 times trailing earnings. At 3.1%, Intel's yield is the highest of any stock mentioned in this story and the 26th-highest yield out of the 56 stocks on our Income Investor scorecard.

If Intel has you licking your dividend chops, I think you want to read this free report of 13 high-yielding stocks you can buy today. Intel is not the only superb combination of high yield, massive resources, and potential growth in this market. The report is 100% free -- grab it right now and fortify your portfolio today!

Fool contributor Anders Bylund owns shares of AMD but holds no other position in any of the companies discussed here. The Fool owns shares of Microsoft, Oracle, and Intel and has also bought calls on Intel. Motley Fool newsletter services have recommended Intel and Microsoft and have also recommended creating diagonal call positions on both stocks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (3) | Recommend This Article (13)

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  • Report this Comment On May 15, 2011, at 9:16 PM, austec wrote:

    Intel's dominating market share (and monopolistic profit levels) are pretty much guaranteed by Intel's "unique" marketing practices:

    It was revealed last year that Intel paid Dell billions of dollars under-the-table to block out AMD.

    It was also revealed (through subpoenaed evidence) that Intel bribed and threated HP, Acer, Toshiba, Sony, etc.

    All of this was to either guarantee exclusivity - regardless of whether AMD was technologically ahead.

    Of course, one might be afraid of antitrust concerns.... NOPE! Intel has that one under control, too. For example, it was revealed by the NY Attorney General that Intel had paid "hundreds of millions" in secret bribes in order to keep AMD's market share at or around 5%.

    In that way, Intel can escape antitrust problems... The trick is to cripple the competition, but still keep the "appearance" of fair competition by not actually destroying the competition.

    Intel is smart. Antitrust and fairness are the government's job, not yours. As an investor, your job it to pick the winner. Intel is the winner.

  • Report this Comment On May 16, 2011, at 6:09 AM, watchem2 wrote:

    With the disaster in Japan, chip manufacturing, and other electronics manufacturing has been severely hampered. To manufacture chips, you need a controlled room environment which requires reliable source of power. It also requires a reliable source of water. It takes more than a week to manufacture a chip. Intel stands to gain some market share from Japan. Where there is a demand, there will be a supply. Intel is very diversified, meaning, not just chips. They just increased their dividend and their share buy back program. They must be feeling pretty confident.

  • Report this Comment On May 17, 2011, at 2:23 PM, JAVEROA wrote:

    Good article and once the pseudo-analysts come around to admitting they have been wrong about Intel, we should see this stock trading with much higher, more deserved multiples, not the less than 10 of forward P/E for a company that can manage, correctly put in the article, provide higher dividends, buy back shares, buy out stellar firms, increase capex and R&D and so on.

    Does anyone know of any tech. company capable of doing all that and trade under 10 F P/E?

    If you do, please share

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