Is There More to Intel Corporation Than Just a Dividend?

Intel's high dividend looks appealing, but its declining revenue is a major concern.

Mar 29, 2014 at 11:00AM

Dividends are all the rage these days, and for good reason. Historically, a huge portion of the stock market's total returns have come from dividends. And, in our current environment of historically low interest rates, investors are starved for yield. A sector getting a lot of attention for its hefty payouts is technology.

However, technology is a very cyclical industry, where investment in research and development is critical. That's created a conflict for investors. On the one hand, dividend payouts are a valuable source of return. On the other, technology companies need to make sure they're devoting enough investment to ensure future growth.

Nowhere is this disparity more evident than with Intel (NASDAQ:INTC). The semiconductor leader pays a fat 3.5% dividend yield, but has suffered through several years of stagnating growth. It's been unable to get its chips into mobile devices. That's why investors should carefully consider whether Intel has a real growth trajectory ahead of it.

Slowing growth a cause for concern for megacap tech
An area gaining increased focus for its dividend payouts is the technology sector. This is a surprise, since technology stocks haven't been known for paying dividends, but that's exactly what's happening. In fact, many large-cap technology stocks like Cisco (NASDAQ:CSCO) and Hewlett-Packard (NYSE:HPQ) pay hefty dividends.

This does make sense, since the largest technology companies have relatively stable business models. They generate high free cash flow, and have lots of cash on their balance sheets to help support their payouts.

Hewlett-Packard recently raised its dividend by 10%, and yields nearly 2%. Cisco does its investors even better. It yields 3.5% after increasing its payout by 12% recently. Technology companies like Intel, HP, and Cisco pay high yields, but their payouts mask some fundamental weakness in their businesses.

HP's revenue fell 7% in 2013 versus 2012, and the company followed this performance with a 1% revenue decline in its first quarter of this year. For its part, Cisco reported an 8% decline in both revenue and adjusted earnings per share in the most recent quarter. Intel hasn't been able to generate growth for a few years now, which is likely wearing on investors' patience.

Intel's struggles wearing on shareholders
Intel remains one of the largest and most profitable technology companies out there. However, it's simply not growing. According to Intel's most recently filed 10-K, Intel's revenue has declined each year since 2011. Diluted EPS is down 21% since then, as Intel's revenue decline has coincided with rising research and development expenses. To that end, Intel's percentage of R&D and marketing, general, and administrative costs rose to 35.5% last year, up from 29.5% in 2010.

The reason for this is that Intel is still tied to personal computers. Despite billions spent, it's still not proven it can get its chips into mobile devices. That's not stopping Intel from continuing to plow money into this endeavor. At its Investor Meeting last November, Intel presented its plan to increase investment in the tablet market by more than 75% in 2014, compared to two years ago.

Investments need to pay off for growth to resume
Intel is making progress on its desire to breach the mobile device industry, but it's spent billions for results that are yet to be seen. Intel is so late to the party that there's a justifiable skepticism that the strategy will work. Intel's revenue is in decline, and that's a disturbing trend that needs to change.

In a recent interview with Fox Business, Intel Chief Executive Brian Krzanich said that his company is on track to supply 40 million tablet processors in 2014, which would represent a four-fold increase from the previous year.

In the meantime, investors can enjoy Intel's hefty dividend yield. However, a dividend is little consolation if a company can't grow profits. This year will be pivotal for Intel to prove its massive investments were justified.

3 stocks that could become your next huge winner
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have done it before with the likes of Amazon and Netflix. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Bob Ciura owns shares of Intel. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information