Intel: For income plus upside potential
This tech leader offers a cheap valuation and a reliable, rising dividend.
The challenge for me as editor of an income-focused service is not just to find recommendations with high yields. If that were the case, we would focus almost entirely on big dividend payers like REITs and partnerships.
We want to own stocks with huge upside potential as well. That's why I'm adding Intel (INTC) to our high-income model portfolio.
Founded in 1968 by scientists Robert Noyce and Gordon Moore, Intel is the world's leading microprocessor company. And its business prospects remain bright as global demand for PCs continues to surge, especially in emerging markets.
In 2011, for instance, total PC purchases were higher in China than any other country. And while the U.S. is now in second place, Brazil and Russia are not far behind.
Business at Intel is booming. Intel's Core processors are powering many of the new thin laptops, tablets and mobile devices.
Its Data Center Group is finding a huge market for a wide range of applications -- from cloud computing to mission-critical servers to high-performance computing (HPC).
And Intel continues to innovate. Its new teraflop processor, for example, is capable of performing complex HPC tasks such as mapping the human genome.
Although Intel reported record revenue of $53.3 billion over the last 12 months, the stock has languished as earnings declined. But there are good reasons to believe this situation is about to change. I estimate Intel will earn $2.50 a share over the next year.
That valuation makes the stock awfully cheap at less than nine times prospective earnings. Bear in mind, too, that this technology leader enjoys 27% operating margins and management is earning a healthy 23% return on equity.
Ordinarily, tech stocks are not big dividend payers. But the stock is so cheap and the company has raised its dividend so reliably that you will enjoy a 4.1% yield here.
And expect good news when the company makes its next earnings announcement on April 16. Traditionally, Intel advances nicely about earnings time.) So, let’s buy Intel at market. And place a protective stop at $17.
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