Intc Wearable
Intel looks for growth in unusual places. Source: Intel.

Technology stocks were slow to get into the dividend-paying game, but Intel (NASDAQ:INTC) was among the pioneers of the tech world in that respect. After paying a token amount for years during the tech boom, Intel started dramatically raising its quarterly payments during the 2000s, and it now has a solid yield of almost 3%. Yet many dividend investors have been confused by Intel's refusal to boost its dividend since late 2012, raising concerns that the chip-making giant doesn't believe that its growth initiatives will pay off enough to justify a higher payout. To address those concerns and assess Intel's characteristics as a dividend stock, let's look more closely at two things every dividend investor should know about Intel.

1. Intel's share repurchase activity has also declined dramatically in recent years.

One of the long debates among stock analysts is whether companies are better off paying dividends or buying back shares of their stock. Both can be effective methods of returning capital to shareholders, but they each have their pros and cons. Dividend investors see quarterly payouts as an implicit commitment to sustain dividends well into the future, whereas they tend to see buybacks as one-time events that won't necessarily happen again. Yet for those investing in taxable accounts, buybacks avoid the tax ramifications of receiving dividend payments.

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As a result, one reason why Intel might have chosen to keep its dividend constant over the past couple of years could be that it wanted to focus on share repurchases instead. The stock price has certainly been low enough in recent years to make buybacks look like attractive uses of shareholder capital. Yet from a high of $14.3 billion in 2011, Intel bought back just $5.1 billion in shares in 2012 and $2.4 billion in 2013. Activity has picked back up a bit so far this year, but even so, the decline in earnings from 2011 to 2013 appears to have spooked Intel about the prudence of making further dividend increases without first demonstrating its ability to turn around its business and start producing dramatic earnings growth again.

2. A PC rebound could be a huge source of Intel dividends.

Intc Chip

Source: Intel.

One long-term issue that investors have had with Intel is that it has remained reliant to a large extent on its legacy PC business. For years, PC sales produced sharp declines as the rising popularity of smartphones, tablets, and other mobile devices ate into demand for traditional desktop and laptop computers. Because Intel was slow to respond with new semiconductor products that would stake its claim on the mobile industry, it lost ground to Qualcomm (NASDAQ:QCOM) and other more mobile-focused competitors. As a result, many analysts believed that Intel was doomed to ride the PC-demand curve all the way down, producing ample cash flow along the way but eventually seeing its business become a shell of its former self.

Yet earlier this year Intel saw an uptick in its PC-related sales, and that helped turn the ailing stock's share price upward. With some of Microsoft's (NASDAQ:MSFT) legacy operating-system software offerings moving beyond the company's ability to provide ongoing tech support, users were faced with the choice of upgrading existing hardware or buying new computers with more recent versions of operating-system software already installed. Apparently, computer owners chose the latter path, and with Intel still commanding a huge market share in the PC processor market, it benefited greatly from those sales.

Going forward, Intel shareholders aren't certain whether the bump in PC sales was a one-time aberration or the trend toward upgrading older equipment will continue. Yet despite the company's efforts to become relevant in the mobile space and also take advantage of opportunities in the cloud computing and data analytics areas, Intel's bread and butter remains the PC, and continued strength in that segment could help produce enough cash flow to justify future dividend increases.

Intel has faced some tough challenges in recent years, challenges that have brought its past earnings growth to a standstill, and dividend investors have had to endure a long period without any additional reward from the company in the form of higher quarterly payouts. A turnaround will take more time to play out, but if it's eventually successful, then Intel will likely return to its dividend-raising ways in the future.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel, Microsoft, and Qualcomm. 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.