In this 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?

The Dividend Report Card wasn't designed as a buy or sell signal but rather as a tool to gauge the health of a company's dividend. For a full explanation of each category, click here for a tutorial.

Today's pupil is Intel (Nasdaq: INTC), which posts a 3.3% yield.

Dividend history

Metric

5-Year Annualized Growth Rate

Dividend per share

12.6%

Source: Intel investor relations.

Many blue chip tech companies are only recent dividend payers, but Intel has paid a dividend each year since 1992, so it has a more robust track record than some of its peers.

Dividend growth has been pretty strong over the past five years, but past returns don't guarantee future results, so dividend history is only 10% of the final grade. Intel does, however, score a 5 of 5 in this category.

Sustainability

 Metric

Trailing 12 Months

Final Grade
Weighting

Report Card Score
(out of 5)

Interest coverage

N/A

10%

5

EPS payout ratio

30.6%

10%

5

FCFE payout ratio

34.9%

30%

5

Source: Capital IQ, a division of Standard & Poor's, as of Feb. 23.

No doubt about it -- Intel has one impressive balance sheet and the company paid zero (zilch!) in interest expenses in 2010. Morningstar gives Intel a credit rating of "AA" and it's easy to see why.

The current payout is more than covered by profit and free cash, so the dividend looks quite sustainable.

Growth

Metric 

Trailing 12 Months

Final Grade
Weighting

Report Card Score
(out of 5)

EPS payout ratio

30.6%

10%

4

FCFE payout ratio

34.9%

20%

4

Sustainable growth rate

17.5%

10%

5

Considering those low payout ratios and median analyst expectations of roughly 10% annualized earnings growth in the next few years, high single-digit or low double-digit dividend growth over the next five years isn't out of the question. Intel could conceivably increase its payout ratios and continue to fuel business growth.

The free cash payout ratio may be crimped a bit next year, though, as Intel ramps up its expansion plans. As our Inside Value team noted in its coverage of Intel's latest earnings report: "Intel had a blow-the-lights-out fourth quarter and a full year that had investors' hair standing on end (in a good way)...Buried below the gaudy headlines and chipper quotes, though, was the news that Intel expects to pour out $9 billion for capital spending in 2011 -- $3.8 billion higher than last year."

Competitors
An "ungraded" section of the dividend report card is to see how a stock's current yield stacks up against that of 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

Median Analyst Est. Long-Term EPS Growth

Texas Instruments (NYSE: TXN)

1.4%

10%

Analog Devices (NYSE: ADI)

2.1%

12.5%

Maxim Integrated Products (Nasdaq: MXIM)

3%

11%

With its current yield at 3.3%, Intel's dividend yield is a bit higher than this peer group and is nearly double the S&P 500 average of 1.7%. Unless Intel's share price rises at a fair rate, the above-average yield may lead the board to opt for lower dividend growth, perhaps in favor of share buybacks.

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

While the numbers might be different, Intel clocked in with the exact same score it had when we looked at it in August. Technology is always changing and some analysts are concerned about Intel's ability to compete on tablets and mobile devices, so some extra due diligence is worthwhile, but Intel is definitely one dividend name to consider.

Want some more dividend ideas? Click here for a free report from Motley Fool expert analysts: "13 High-Yielding Stocks to Buy Today."

Todd Wenning is advisor of Motley Fool UK Dividend Edge. He owns shares of Intel. Intel is a Motley Fool Inside Value pick. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended a diagonal call position on Intel. The Fool owns shares of Texas Instruments and has a disclosure policy.