Intel Delivers Big Surprise With Dividend Hike and 2015 Guidance

Intel Corp. (NASDAQ: INTC) may be hosting its annual investor meeting, but there was a significant surprise that many investors had been warned previously not to expect. Intel is raising its dividend again, up to $0.96 on an annualized basis from a prior annualized rate of $0.90. Intel’s most recent dividend hike was paid out in mid-2012, when the quarterly payout went to $0.225 per share from $0.21 per share.

Another development is that Intel provided its 2015 business outlook. In short, now analysts know what to expect from Intel for a full year ahead. Intel shares have rallied handily on the news.

Thursday’s dividend hike will begin with the dividend declared in the first quarter of 2015. 24/7 Wall St. had occasionally read back in 2013 and even sometimes in 2014 in various research reports that Intel might not be raising its dividend for years.

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Why this matters so much is that companies raising their dividends feel like they have ample income coverage for years into the future to be able to support that payout. That $0.96 per share annualized payout compares to Thomson Reuters consensus earnings estimates of $2.24 per share in 2014 and $2.38 in 2015. Apparently Intel is not worried about its earnings power at all.

Full-year 2015 guidance was issued as follows:

  • Revenue growth in the mid-single digits (consensus is 3.4% for 2015, after 6% in 2014).
  • Gross margin was put at 62%, plus or minus two points.
  • R&D plus MG&A spending as a percentage of revenue is expected to be down, with spending of approximately $20 billion, plus or minus $400 million.
  • Capital spending of approximately $10.5 billion, plus or minus $500 million.

Intel CEO Brian Krzanich does not seem ultra-focused just on the rise of smartphones and tablets. He emphasized that Intel’s highest shareholder value will come from a strategy that utilizes the core assets that drive the company’s PC and data center businesses — moving into profitable, complementary market segments. The chip giant believes that its manufacturing capability, Intel architecture and the use of shared IP are key elements of the growth strategy.

Intel Chairman Andy Bryant said, “Today’s dividend announcement reflects the board’s confidence in Intel’s strategy. It also reflects the board’s ongoing commitment to create value and return cash to Intel’s stockholders.”

Intel shares closed Wednesday at $34.35, against a 52-week range of $23.40 to $35.56. Its shares were up over 3% at $34.45 with about three hours before the closing bell. Intel’s market cap is now approaching $171 billion. Its role in the bull market Thursday is much different than during the 2000 tech bubble.

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Note that analysts have a consensus price target of $34.83. That being said, analysts were not really expecting this dividend hike to come for sure. Intel’s dividend yield was already 2.62% as of Wednesday’s close, and that is not low at all for a technology company. Here is how analysts had commented just this week ahead of this investor meeting:

  • Intel was reiterated as Outperform with a $40 price target at Credit Suisse ahead of its analyst day, with a call that it has $4 in earnings per share power.
  • Bank of America Merrill Lynch also reiterated its Buy rating and $43 price objective.

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