Intel's Dividend Is Safe

Dividend investors know that it pays to follow how much of a company's money goes toward funding its payouts. A nice yield now won't matter much if the company can't keep making those payments going forward.

Here, we'll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools:

  • The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than 1 means that the company is not bringing in enough money to cover its interest expenses.
  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
  • The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business' health. The FCF payout ratio measures the percentage of free cash flow devoted toward paying the dividend. Again, a ratio greater 80% could be a red flag.

Each of these ratios reflect dividends paid in the trailing 12 months; yields are the expected forward yield. Let's examine Intel (Nasdaq: INTC  ) and three of its peers.

Company

Yield

Interest Coverage

EPS Payout Ratio

FCF Payout Ratio

Intel

3.8%

NM

30.6%

47.7%

Oracle (NYSE: ORCL  )

0.7%

15.8

13.2%

11.2%

Texas Instruments (NYSE: TXN  )

1.7%

NM

18.8%

31.6%

Qualcomm (Nasdaq: QCOM  )

1.6%

41.4

33.0%

70.9%

Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful.

Intel's interest coverage ratio of more than 2700 isn't particularly meaningful. The company has about $2 billion in long term debt, which is easily covered by its roughly $8 billion in free cash flow. Given that its EPS payout ratio and FCF payout ratio are below 50%, you shouldn't have to worry that Intel will need to cut its dividend anytime soon.

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Follow Dan Dzombak on Twitter at @DanDzombak to check out his musings and see what articles he finds interesting. The Motley Fool owns shares of Oracle, Intel, Texas Instruments, and Qualcomm and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position on Intel. 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. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 16, 2011, at 8:34 AM, sept2749 wrote:

    I bought Intel years ago and watched it lie on it's belly for even more years. However, now I have a great dividend stock that I believe is undervalued. IMHO they are far ahead of their competition. Got to watch your stocks - their tricky little guys as is the market. I'm going to add more intc this month on a dip.

  • Report this Comment On July 16, 2011, at 9:23 AM, techy46 wrote:

    Agree. The PC's dead crowd is starting to learn to PC's mobile would be a better catch phrase. Intel's a better bet than Apple or Microsoft from here on out but Microsoft is heading toward a sweet spot with Windows 8 too. On well, conservative dividend investing is much more predictable than the fad and momentum style.

  • Report this Comment On July 16, 2011, at 10:25 AM, David369 wrote:

    I think their new transistor/chip design might make a difference but the proof won't be apparent until probably early next year. You have to figure with all that money they have to be able to hire some dang smart PhDs to come up with new tech and there will be peaks and valleys in the R&D results. Unlike Apple or Microsoft, Intel mainly relies on pure technical innovation within devices rather than large packages of many parts that have to appeal to the masses. As long as they stay focused and hit the target well and repeatly they should do well. They just have to clearly define the "target" for changing times.

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