Intel Corporation (INTC): A Technology Monopoly Paying Safe, Growing Dividends

Valuation

Intel Corporation (NASDAQ:INTC) trades at a forward price-to-earnings multiple of 13.9 and has a dividend yield of 3.3%, which is roughly in line with its five-year average dividend yield of 3.2%.

Intel’s reported earnings and free cash flow per share have each grown by 3-4% per year over the last five years. If this trend continues, Intel’s annual total return potential would be approximately 6-8%.

Intel believes it can grow revenue at a mid- to high-single digit pace so long as the PC market does not decline by more than 5% per year. Under this scenario, earnings would likely grow faster than 3-4% per year given the company’s relatively high fixed costs.

Overall, we think Intel’s stock seems very reasonably priced and is certainly factoring in at least some of the uncertainty surrounding the PC market’s long-term growth profile.

Conclusion

Simply put, Intel dominates its markets and arguably operates as a monopoly in the PC and data center markets. The company’s heavy investments in factory equipment, manufacturing processes, and R&D have helped it stay years ahead of its competitors and enjoy excellent pricing power and margins.

While Intel’s legacy computer market appears stagnant at best, the boom in data consumption and connected devices is driving strong demand for data centers and plenty of emerging “Internet of Things” applications.

Intel’s dominant market share and excellent profitability will certainly keep the company in the crosshairs of competitors, especially in technology. That’s just the way capitalism works.

However, given what we know today, Intel’s hold on the market continues to look very strong. Intel is one of our favorite blue chip dividend stocks and appears to have plenty to offer dividend investors seeking safe income and at least moderate income growth.

Disclosure: None