Why Intel's Dividend Is Rock Solid

Despite slow growth, Intel's cash generation is strong and new products coming out over the next few years should lead to increased growth, ensuring its dividend long-term.

Jun 7, 2014 at 1:00PM

The blue chips on the Dow Jones Industrial Average (DJINDICES:^DJI) are some of the biggest and most stable companies in the world. And one way they reward investors for owning them is by paying them dividends quarter after quarter.

Intel (NASDAQ:INTC) doesn't have a century-long history of paying dividends like DuPont or 3M, but it's one of the best of a newer generation of dividends. Here's why I think Intel is a dividend for investors to buy and hold.

Why Intel's dividend rocks
When looking at dividends, it's important to look at the payout along with the underlying business that generates cash for the dividend. In the following chart, you can see that the dividend itself (the orange line) has been increasing, but the two other lines show cash generated by the business and how much of that cash is paid out to shareholders.

<a href="http://ycharts.com/companies/INTC/chart/"><img src="http://media.ycharts.com/charts/0483150eb7c800bc6e22f97a78308c31.png" alt="INTC Payout Ratio (TTM) Chart" /></a><p style="font-size: 10px;"><a href="http://ycharts.com/companies/INTC/payout_ratio">INTC Payout Ratio (TTM)</a> data by <a href="http://ycharts.com">YCharts</a></p>

A payout ratio below 50% shows that Intel's 3.3% dividend yield could double and the company would still be able to operate efficiently. But Intel is dumping money into R&D and capital expenditure, which it hopes will lead to growth in the future.

Intc Mimo Image

Wearables like this Mimo baby monitor are a huge growth opportunity for Intel. Image source: Intel.

Set up for growth
The slow decline of the PC has hurt Intel; there's no doubt about that. But what management has been investing in is the chips of the future. Intel will be the first to introduce 14 nm chips that are going to be targeted for smartphones, tablets, and wearable devices. There's been a big effort to improve energy efficiency as well as increase speed and with momentum in signing new OEMs that are making Intel powered tablets the strategy appears to be working.

But where Intel will jump ahead of the competition is in wearables, which are the future for chipmakers. The "Internet of Things" is just getting started, and before long our watches, cars, glasses, and almost everything imaginable will be connected. If Intel can take a large share in this growing market it'll add to strong positions in PCs and servers, ensuring cash flow for future dividends.

Foolish bottom line
Intel is no longer a hot growth stock, but with high margins and strong cash flow, it's a dividend investor's dream. Upside potential in new markets make me think that dividend is safe long-term and this is a great value for investors.

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Travis Hoium owns shares of 3M, Apple, DuPont, and Intel. The Motley Fool recommends 3M, Apple, and Intel and owns shares of Apple and 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.

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.

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