The emergence of trends such as the Internet of Things, artificial intelligence, and self-driving cars continues to shift the balance of power in the semiconductor industry. And those changes are creating opportunities for shrewd (and Foolish) investors to profit.
In that regard, graphics-chip specialist NVIDIA (NASDAQ:NVDA) has emerged as a leader for the next generation of chipmakers, while Intel (NASDAQ:INTC) is among the longtime market stalwarts to have struggled to keep pace with fast-growing challengers.
However, though its growth has lagged far behind NVIDIA's, Intel still outshines its rival in one critical respect: its dividend. Here's why Intel eats NVIDIA's lunch as a dividend stock.
Intel's dominant dividends
In terms of its current yield, its dividend track record, and the growth of its cash payouts, Intel may be the best dividend stock in the semiconductor industry. Here's a visual look at the differences between Intel and NVIDIA:
This argument once wasn't so one-sided. In the years immediately after initiating its dividend, NVIDIA hovered around the 2% range with its payout. However, as its stock price has exploded, its yield has plummeted. The benefits still outweigh the negatives for NVIDIA shareholders, though the change does open the door for Intel as the go-to income investment in the space.
Intel yields 2.8% on a trailing 12-month basis and 3% on a forward basis; the company increased its quarterly dividend per share by roughly 5%, from $0.26 to $0.27, during its most recent earnings report. Equally important, the company pays out only 45% of its current profit as dividends, giving Intel plenty of flexibility to increase its payouts, even if earnings growth is tepid.
The biggest differentiator, however, is tenure. Intel instituted its dividend program in September 1992 and has grown its payout ever since, from $0.014 per share in 1994 -- the first year it paid on a traditional quarterly dividend schedule -- to $1.04 last year. That's a 20.5% dividend growth rate. NVIDIA, with its six-year dividend history, can't hold a candle to Intel here.
Still, other semiconductor producers deserve to be considered as the sector's top dividend stock. The most obvious candidate is mobile-chip giant Qualcomm (NASDAQ:QCOM).
Qualcomm yields a tantalizing 3.6%, far better than Intel or NVIDIA. And it, like Intel, has already raised its dividend this year, up 7.5%, from $0.53 to $0.57. That translates to a 3.9% forward yield.
However, Qualcomm faces its own issues that give me pause about recommending its shares. The company's business model, which largely relies on licensing Qualcomm's sizable patent portfolio to smartphone and tablet makers, is coming under increasing legal pressure from regulators and companies around the world. If Qualcomm survives the judicial onslaught, the company will have been an attractive buy in retrospect. However, investing in a company whose business model could be upended is unnecessarily risky.
Not that Intel or NVIDIA are perfect investments, either. Intel needs to continue to diversify its revenue base into growing areas of the semiconductor market. Its recent bid to purchase autonomous-vehicle component producer Mobileye is a clear, albeit expensive, step in the right direction -- but it needs to do more. For NVIDIA, its valuation prices in plenty of future growth, which seems achievable over the long term. However, its expensive stock price has lowered its yield, which decreases its attractiveness for income investors.
In the end, Intel remains the best semiconductor investment on the market today. The company's potent mix of current yield and past track record make it a dependable dividend stock for those seeking to generate income from their portfolios.