Intel Lowers Dividend, Reaffirms Q1 Guidance and Technology Roadmap
Intel on Wednesday reaffirmed first-quarter guidance but lowered its dividend by 66%, opting to preserve more cash as the chip maker continues its capital-intensive transformation.
Following our discussion in January, this action doesn't come as a big surprise given the rising amount of management discretion involved with deciding whether to maintain Intel's dividend.
On one hand, Intel's $28 billion of cash and investments and A+ credit rating give the firm significant firepower to invest in its future and operate at a free cash flow deficit in the short term, including the payment of dividends.
But against a tough backdrop of weak PC demand, it was hard to gauge whether Intel would keep its dividend intact, even if it had the financial ability to do so.
Here are relevant excerpts from our January 2023 note:
Following our discussion in January, this action doesn't come as a big surprise given the rising amount of management discretion involved with deciding whether to maintain Intel's dividend.
On one hand, Intel's $28 billion of cash and investments and A+ credit rating give the firm significant firepower to invest in its future and operate at a free cash flow deficit in the short term, including the payment of dividends.
But against a tough backdrop of weak PC demand, it was hard to gauge whether Intel would keep its dividend intact, even if it had the financial ability to do so.
Here are relevant excerpts from our January 2023 note:
Will management stay committed to shelling out $6 billion a year to shareholders if results continue to undershoot expectations in this dynamic environment?
Will preserving liquidity take priority over rewarding income investors if the economy dips into a recession?
Challenging market conditions have made these questions harder to answer in recent months, despite Intel's strong liquidity position and insistence that its long-term investments remain on track.
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While continuation of Intel's 5% dividend yield would be nice, investors should own the stock for its potential to at least double over the next few years if management's turnaround succeeds.
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Investors can better evaluate the success of Intel's turnaround investments in 2024, when the company expects to achieve process performance parity with TSMC before resuming a leadership position in 2025.
This will be far more important for the firm's future than today's noise caused by uncontrollable macro events and share losses that reflect past missteps.
From this perspective, Intel's latest disappointing news probably isn't reason to sell for investors who are playing the long game and are comfortable with the fuzzier outlook for the dividend.
– Simply Safe Dividends January 2023 Note
In addition to resetting its dividend, Intel reaffirmed its first-quarter outlook, said its cost reduction efforts remain on track, and reiterated the timing of its long-term technology roadmap.
Shares of Intel now yield around 2%, and we continue to view the dividend as Borderline Safe as management balances the company's financial firepower with a turnaround plan that will keep Intel operating at a free cash flow deficit in the near term.
The success of Intel's turnaround, which won't become clear for at least another 18 to 24 months, remains the most important driver for the stock. Today's news doesn't change that longer-term outlook.
If all goes well, Intel may be positioned to restore its dividend in 2026, when management expects capital intensity to moderate and margins to jump, returning the firm to its cash cow status with double-digit sales growth potential.
A lot will happen between now and then. We will continue monitoring Intel's turnaround and provide updates as needed.
