In the dividend report card series, we analyze financial metrics to begin answering the following questions about a company's dividend:

  1. Over time, has this company steadily increased its payouts?
  2. How sustainable is the dividend?
  3. Does the company have room to further increase the dividend?

For a full explanation of each category, click here for a tutorial.

Today's pupil is Intel (Nasdaq: INTC), which has a 3.2% yield.

Dividend history

Metric

5-Year Annualized Growth Rate

Dividend per share

19.9%

Diluted earnings per share

5.1%

Source: Capital IQ, a division of Standard & Poor's.

Intel's capital return has been -26.4% over the past five years, so the increasing dividend has been quite welcome to long-term shareholders. In fact, if you had reinvested the dividends over this period, your loss would have been "only" -16.4%. As Intel's business enters its mature growth stage, it's encouraging to see it paying out more cash to shareholders in the form of dividends.

Sustainability

 Metric

Trailing 12 Months

Final Grade
Weighting

Report Card Score
(out of 5)

Interest coverage

13,821 times

10%

5

EPS payout ratio

34.8%

10%

5

FCFE payout ratio

39.9%

30%

5

Source: Capital IQ, as of Aug. 12, 2010.

That interest coverage ratio figure is not a typo -- Intel only paid about $1 million in interest over the past 12 months while generating $13.82 billion in operating profit (EBIT). Suffice it to say, then, that Intel has a very strong balance sheet, fortified with $5.5 billion in cash. Intel also generates more than enough cash flow and profits to cover its current dividend, so the dividend seems quite sustainable.

Growth

Metric 

Trailing 12 Months

Final Grade
Weighting

Report Card Score
(out of 5)

EPS payout ratio

34.8%

10%

4

FCFE payout ratio

39.9%

20%

4

Sustainable growth rate

14.6%

10%

5

Intel is in pretty good shape to keep raising its dividend over the next five years. In fact, Wall Street analyst consensus currently pegs Intel's five-year earnings growth rate at 10%, which would put 2015 earnings per share at roughly $2.76. If the dividend were to grow at, say, 15% per year over that period, it would amount to about $1.27 per share, or a 44% earnings payout ratio. That's well within the realm of possibilities.

Competitors
An "ungraded" section of the dividend report card is to see how a stock's current yield stacks up against direct competitors'. If it's too high relative to competitors' yields, the board could be tempted to slow the growth rate, or vice versa, to bring it more in line with the industry average.

Company

Dividend Yield

Texas Instruments (NYSE: TXN)

1.9%

Analog Devices (NYSE: ADI)

3.0%

Maxim Integrated Products (Nasdaq: MXIM)

4.9%

With its current yield at 3.2%, Intel's dividend yield doesn't seem too high or too low relative to competitors.

Pencils down!
With all the numbers in, here's how Intel's dividend scored:

Weighting

Category

Final Grade

10%

History

5

 

Sustainability

 

10%

Interest Coverage

5

10%

EPS Payout Ratio

5

30%

FCFE Payout Ratio

5

 

Growth

 

10%

EPS Payout Ratio

4

20%

FCFE Payout Ratio

4

10%

Sustainable growth

5

100%

Total Score (Out of 5)

4.7

 

Final Grade

A

Intel has a lot going for it right now. As our Motley Fool Inside Value team recently noted about the last quarter's earnings: "The best quarter ever -- that's what Intel delivered with small business and enterprise demand-powered sales. The company hit records with revenue up 34%, and a gross margin of 67%."

So if you've been thinking about adding a high-yielding technology company to your portfolio, Intel is a great place to start your search.

Fool analyst Todd Wenning doesn't own shares of any company mentioned. Intel is a Motley Fool Inside Value choice. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of and has written puts on Intel. The Fool has a disclosure policy.