Intel: The Ultimate Income-Producing Tech Stock

NEW YORK ( TheStreet) -- Today Intel ( INTC) reports its quarterly earnings after the market closes.

Monday felt like a day of purging for the major stock market averages, with the S&P 500 closing down 2.3% to finish slightly above the technical support level of 1552. The world's investors are poised at the edge of their seats wondering what will happen today, especially after gold's price fell another 9.3% Monday (see my most recent article about "The Wacky World of Gold and Silver").

The bloodbath in the investment markets was partially blamed on slowing economic growth in China. Many solid, low PE ratio dividend-paying stocks like Eaton ( ETN) fell sharply. ETN closed the day down over 5% to $57.22.

Yet, the stalwarts of the old-school technology titans who pay generous dividends didn't budge much at all. Microsoft ( MSFT) closed down 10 cents tp $28.69 Monday on higher than normal volume. MSFT's dividend yield-to-price is nearly 3.21% and it reports earnings on Thursday.

It's hard to disagree with our own Jim Cramer on the topic of whether a China slowdown is a threat to big tech companies. "Take your pick, but tech isn't as dangerous as it would seem because of China, it's just dangerous because we are about to get earnings," Cramer said Monday.

Perhaps that's INTC shares moved 1.36% lower on lower than average volume. Closing at $21.38 lifted INTC's yield-to-price to an amazing 4.2%. Those who follow INTC know management has been committed to keeping the dividend yield at high levels.

The conundrum the company faces is that over the past 10 years the dividend has grown close to a 30%-per-year clip. That slowed way down last year, but at the current 90 cents per year payout this has pushed the payout ratio to around 41% of net income.

Analysts are expecting, on average, a 22.6% decrease in INTC earnings-per-share (EPS) to around 41 cents. Without an announced increase in the dividend payout it will stretch the payout ratio closer to 50% or higher.

Sales growth and revenue for the first quarter of 2013 is also expected to be down an average of around 2.3%. A closer look at the one-year chart below reveals how the price-per-share is impacted by both the diluted quarterly year-over-year EPS and the trailing 12-month quarterly per-share revenue numbers. INTC Chart INTC data by YCharts

The recent reports of up to a 14% quarterly decline in global PC demand has some wondering if INTC may be able to meet or exceed its earnings and revenue projections. It needs to let the investment community know that it will somehow be able to sustain or grow its EPS to keep paying the dividend we're used to.

Last quarter the company announced a $13 billion capital expenditure plan and many analysts thought they heard that it would help INTC make meaningful inroads into the mobile device markets. That topic will be another very important one during the earnings call.

Will the current CEO Paul Otellini announce his successor during the earnings report and call? If he does, and if that choice speaks to Intel's determination to carry on with its commitment to become a dominant player as a microprocessor provider for smart phones and tablets, the stock may stabilize.

In what appears to be a long overdue correction in the stock market, one of the best ways for companies like Intel to put a floor under its stock price is to maintain its generous dividend policy and deliver some upbeat guidance for the rest of 2013. If it stumbles on either the results may be as ugly as gold's current debacle. Hope for the best and prepare for the possibility of a disappointment.

At the time of publication the author had was long INTC and MSFT and has sold a LEAP put option on ETN.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Make smarter trading decisions and provide investment ideas that could help make you richer. Bryan Ashenberg does the dirty work so you don't have to!

If you liked this article you might like

Jim Cramer: These 4 Stocks Seem Attractive Right Here

Jim Cramer: These 4 Stocks Seem Attractive Right Here

Nvidia Talks at the Big Goldman Sachs Tech Conference: 5 Top Takeaways

Nvidia Talks at the Big Goldman Sachs Tech Conference: 5 Top Takeaways

Jim Cramer: Get Ready for the Analysts to Come Out of Their Foxholes

Jim Cramer: Get Ready for the Analysts to Come Out of Their Foxholes

Roku, Amazon, Teladoc, Weyerhaeuser: 'Mad Money' Lightning Round

Roku, Amazon, Teladoc, Weyerhaeuser: 'Mad Money' Lightning Round

Volatility Is Still in Charge: Cramer's 'Mad Money' Recap (Friday, 2/9/18)

Volatility Is Still in Charge: Cramer's 'Mad Money' Recap (Friday, 2/9/18)