In January 2013, Security Internet premiered with a evaluate of Intel (Nasdaq: INTC), a semiconductor powerhouse that has been in operation since 1968.
Since that evaluate, Intel has raised its dividend eight occasions and has not reduce it.
With a 5% yield, this tech big seems to be like a stable dividend payer… and its $118 billion market cap makes it virtually too massive to fail.
Virtually.
Regardless of Intel’s established dividend and place of prominence within the booming tech business, there’s one thing regarding brewing below the corporate’s floor.
After we’re ranking shares like this, we first take a look at the corporate’s free money stream (FCF). It’s one of the best ways to gauge an organization’s capacity to pay its dividend.
Intel’s FCF was $14.25 billion in 2018 and peaked at $20.93 billion in 2020. However in 2021, FCF took a critical nosedive, dropping to $9.6 billion – a 54% decline in only one yr.
The aftershocks of the pandemic put a pressure on provide chains, and semiconductor corporations had been hit notably arduous.
Now Intel’s FCF is -$3.3 billion, which suggests Intel must dip into its money reserves to not solely fund its enterprise but in addition pay its dividend.
In 2021, the corporate’s payout ratio was a stable 59%. However this yr, it received’t have a payout ratio in any respect due to its damaging FCF.
Free money stream isn’t anticipated to show round till 2024… and the payout ratio received’t get again on observe till not less than 2025.
Why is without doubt one of the greatest tech shares available on the market struggling to generate FCF?
The provision squeeze is one motive. One other is that Intel faces elevated competitors.
Intel continues to garner 75% of the marketplace for laptop computer central processing items. However the firm admits that it’s falling behind its rivals technologically.
That’s why it’s participating in a strategic shift to supply providers that may enable it to raised compete with the likes of Superior Micro Gadgets (Nasdaq: AMD) and Taiwan Semiconductor Manufacturing (NYSE: TSM).
Strategic shifts are costly, although, and the money it has spent on new initiatives has worn out Intel’s reserves. The payoff received’t come till years from now – placing Intel in limbo whereas it waits for its investments to return to fruition.
On the one hand, Intel loses vital factors for its declining FCF.
Then again, Intel has paid growing dividends for practically a decade and has plans in place to get its enterprise again to the place it must be.
However with the corporate dipping into money reserves to pay shareholders, Intel’s dividend may be at risk of getting reduce.
Dividend Security Ranking: D
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Good investing,
Brittan