Intel's Strong Dividend Belongs in Your Portfolio Now
Shares of Intel (INTC) - Get Report , the world's largest semiconductor company, will traded ex-dividend Wednesday, Nov. 4. To qualify for a dividend check, investors must own shares of the chip giant on or before its ex-dividend date -- the day it finalizes its roster of the shareholders to whom it will send dividend payments.
Buying dividends -- a strategy that consists of buying stocks for the sole purpose of collecting a quarterly dividend and then selling the stock shortly after the cash payment is made -- can be lucrative. But to make money, the strategy requires excellent timing. Intel, headquartered in Santa Clara, Calif., pays a 24-cent quarterly dividend that yields 3.00% annually. Its yield is one percentage point higher than the 2.00% average yield paid out by companies in the S&P 500 (SPX) index.
Intel will send its payout on Dec. 1 to shareholders of record as of Friday, Nov. 6. This amounts to roughly four weeks from the record date. If that seems like a long time, consider the attractive valuation of Intel stock and the likelihood that the shares, which are down 10% on the year to date, can surge higher.
Intel stock trades at just 13 times earnings, compared to a price-to-earnings ratio of 21 for the average stock in the S&P 500 index. And at a price of around $34 a share, Intel stock is valued at just 13 times fiscal 2016 earnings estimates of $2.32 a share -- four points lower than the forward P/E of the average stock in the S&P 500 index. This means if Intel stock traded on par with the rest of the market, it would be valued today at around $39.
Intel owes its stock discount to the trouble it has faced to grow revenue amid declining personal computer sales. It's more important, however, to focus on how Intel plans to grow future revenue and profits and return value to shareholders in the quarters and years ahead. These include server-related chips and cloud services -- areas for which analysts project higher future demand.
What's more, both Citigroup and Wells Fargo last month suggested improved demand for personal computers is imminent,. So Intel might have seen the worst of the downturn. That, along with its revenue and earnings growth synergies from its acquisition ofAltera (ALTR) - Get Report , suggest that Intel's prospects are likely underestimated.
Investors would do well to buy these shares at current levels and wait for Intel to execute. Its strong dividend will be an added bonus.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.