Intel’s dividend profile and valuation
Intel Corporation (NASDAQ:INTC) is a semiconductor chip maker. At present, Intel is trading at attractive multiples. Intel is trading at a discount based on its price-earnings (PE) ratio of 12, compared to the industry average of 41.5. Over the years, Intel has been paying solid and consistently-increasing dividends.
At present, Intel Corporation (NASDAQ:INTC) offers a quarterly dividend of $0.2250 per share. In 2012, Intel Corporation (NASDAQ:INTC) paid a dividend of $0.87 per share. In the past three years, it has been consistently able to increase its payout ratio based on dividends. It has stretched its payout ratio from 31.3% to 44% in the trailing twelve months (ttm).
How are dividends safe?
Recently, Intel Corporation (NASDAQ:INTC) announced first-quarter 2013 results with $2 billion in net income. Its earnings were down by 19% compared to the last quarter, mainly due to softness in the market. Still, Intel has been anticipating increasing revenue growth in the low single-digits, percentage-wise. On top, the company has potential to generate strong cash flows.
At the end of Q1, its operating cash flow stood at $4.3 billion, with $1.1 billion returned in dividends and $625 million in its share re-purchase program. Its free cash flows adequately covered the cost of the dividends. In the ttm, its free cash flows totaled $9.94 billion while dividend payments were $4.4 billion. The company’s low debt also increases its ability to sustain dividends.
Cisco’s dividend profile and valuations
Over the past two years, Cisco Systems, Inc. (NASDAQ:CSCO) has turned out to be a solid stock for dividend investors. In the past year alone, it has increased dividends by 112.2%. At present, Cisco offers a quarterly dividend of $0.17 per share. At the end of 2012, its payout ratio, based on dividends was 18.8%. Its payout ratio provides it a lot of room to increase dividends.
At present, Cisco Systems, Inc. (NASDAQ:CSCO) is trading at attractive multiples. Cisco Systems, Inc. (NASDAQ:CSCO) is trading at 13.8 times to earnings relative to the industry average of 70.4. At the time of writing, Cisco is trading at $21 per share which is well below analysts’ target price of $26 per share. Additionally, with a forward PE of 11.5 the stock has potential to appreciate further.
How are dividends safe?
The company has a solid enough financial situation to back its dividends. Its top-line growth is incredible. In the past three years, its revenue growth stands at 8.3% while the industry average is -3.5%. Additionally, it has potential to convert sales into profits at high margins. In the ttm, its operating and net margins stand at 22.4% and 19.7%, respectively.
Cisco Systems, Inc. (NASDAQ:CSCO)’s strong profitability enables it to generate solid cash flows year-over-year. Its operating cash flows are growing while its capital expenditure remains flat at $1.1 billion. Additionally, the company has an extremely low amount of debt, which provides it more room to increase dividends.
How General Electric is undervalued
General Electric Company (NYSE:GE) is a solid pick among diversified industrial stocks. At present, the stock is trading at a discount based on its PE and P/B (price-to-book) ratios of 16.3 and 1.9, respectively. At the time of writing, the stock is trading at $23 per share, which is well below analysts’ target price of $28 per share.
How are dividends safe?
At present, General Electric Company (NYSE:GE) offers a quarterly dividend of $0.19 per share, a 3.13% yield. Along with the improving economy, this diversified industrial stock is also showing strong improvement in its business. It operates in seven business segments. In Q1, all of its business segments have shown strong growth, except for power and generation. On a consolidated basis, its operating profit stands at $4.1 billion, representing an increase of 14% over the past year’s quarter.
The company is aggressively working on a cost-out plan to enhance its margins. It is looking to reduce $1 billion of operational expenses by the end of 2013. With the cost-out plan, it hopes to generate margin growth of 70 basis points. On the negative side, General Electric Company (NYSE:GE) has a high debt-to-equity ratio of 1.9, compared with the industry average of 1.1.
However, I believe its solid cash position enables it to sustain returns along with debt reduction. The company is projecting a return of $18 billion to investors through a combination of repurchased shares and dividends.
In conclusion
Intel Corporation (NASDAQ:INTC) has a long history of dividends. It looks like a safe dividend stock as it has potential to generate strong cash flows. Cisco Systems, Inc. (NASDAQ:CSCO) is turning out to be an attractive investment for dividend investors. The company has extremely low debt and strong cash flows. Its payout ratio allows it to make hefty increases to its dividends. General Electric Company (NYSE:GE) is aggressively taking measures, such as investment in growth opportunities and cost-cutting measures, to maintain its profitability.
The article 3 Undervalued Dividend Stocks For Safe Income originally appeared on Fool.com and is written by siraj sarwar.
siraj sarwar has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of General Electric Company and Intel. siraj is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited
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