Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to take a look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock.
This week, I'm looking at the world's largest (in terms of revenue) manufacturer of semiconductors, Intel (NAS: INTC) .
It's good to be king
A decade ago, if you had told me to think about an income-producing dividend portfolio, I couldn't name a single technology company that was really coming to the aid of investors. Now there are a handful of solid yields in the tech sector, and Intel has been pioneering that charge.
Intel's dominance begins with its commanding market share lead over rival Advanced Micro Devices (NYS: AMD) . According to market research firm IHS, Intel's processor revenue accounted for 83.7% of all processor revenue in the third-quarter of 2011. That's up from 80.9% in the year-ago period. AMD, on the other hand, saw its market share dip to 10.2% from 11.5% one year ago.
What's also interesting to note is that the one area where Intel is losing ground to AMD is netbooks - and that's an area that's shrinking faster and faster by the day. IHS predicted global netbook shipments would fall by a third in 2011, and could shed yet another 30% by 2015. Intel appears wise to have pulled out of this space.
Cheering a "cloudy" forecast
Intel seems to have bet much of its company's future on cloud computing, where it continues to pick up market share. Earlier this week, Intel unveiled the Xeon E5-2600 server chip aimed at cloud computing. By Intel's estimate, more than 15 billion mobile and tablet devices will be connected to the cloud by 2015, and Intel has already begun shipping these new chips to Cisco Systems, Hewlett-Packard, IBM, Oracle, and Dell.
Making its mark in cloud computing won't be a cakewalk, though: Amazon.com's (NAS: AMZN) EC2 computing payment system and S3 storage system are the models which other cloud-computing companies look up to. And Amazon has made it clear it doesn't need Intel's help developing its platform. Google (NAS: GOOG) and salesforce.com (NYS: CRM) also have independently run cloud-based platforms that could provide stiff resistance to Intel's new line of cloud-based products.
Still, Intel has shown that it can deliver, year after year. In January, the company's full-year results highlighted a 24% jump in revenue, to $54 billion, and a 19% pop in EPS, to $2.39 -- both records. What these strong results have done is allowed Intel to boost its dividend substantially over the past eight years, from just $0.02 quarterly to its current quarterly payout of $0.21. See for yourself just how far Intel has come:
What's even more exciting than Intel growing its dividend by 34% annually over the past eight years is that its payout ratio is still just 35%, based on an annual dividend of $0.84, and its full-year EPS is $2.39. There's plenty of room for future dividend growth.
Even before Intel carried a hefty dividend, it was really hard to argue against buying the company. Now that Intel is solidifying its presence in the cloud, removing itself from outdated technology (like netbooks), growing its market share lead over AMD, and boasts a growing 3.1% yield, I find the stock practically irresistible.
If you're craving even more dividend ideas, I invite you to download a copy of our latest special report, "11 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!
- Add Intel to My Watchlist.
At the time this article was published Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. He would often describe himself as "chipper." You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Intel, Amazon.com, Google, Cisco Systems, and Oracle. Motley Fool newsletter services have recommended buying shares of Intel, Amazon.com, Google, and salesforce.com, as well as writing covered calls on Dell and, in a separate newsletter, service-shorting shares of Salesforce. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that always loves a free payout.
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