Intel embarked on a monumental expansion plan

Technology firms tend to pay lower dividends than say, utilities, as they must spend large amounts of their revenue on research to remain competitive. However, Intel offers investors an attractive combination of long-term growth and income.

This semiconductor giant is channeling approximately $160 billion into new chipmaking facilities across the U.S. and Europe. This should significantly reduce America’s reliance on Asian chip manufacturers, with the firm’s new plants projected to meet the burgeoning demand for specialized chips powering artificial intelligence (AI) applications.

Meanwhile, the stock trades at just 15.5 times the company’s 2025 earnings forecast.

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INTEL CORP. (Nasdaq symbol INTC; www.intel.com) is the world’s leading maker of computer chips: its products power roughly 75% of all personal computers and 70% of all datacentres.

To conserve cash for its new plants (see below), Intel cut its quarterly dividend 65.8% in June 2023, to $0.125 a share from $0.365. The annual rate of $0.50 yields 1.6%.

Intel’s dividend has now declined an average 16.9% annually over the last 5 years. The company’s TSI Dividend Sustainability Rating is now Average.

However, under a new strategic plan to improve its technical expertise and expand its ability to make chips for other companies, Intel is spending roughly $160 billion on new chipmaking plants in the U.S. and Europe. To put those outlays in context, the company’s market cap is $135.7 billion.

The company recently launched its new Gaudi 3 technology to power artificial intelligence (AI) applications, such as the popular ChatGPT chatbot. This technology is faster and cheaper than current AI chips, which will help it compete with AI chip leader Nvidia.

The U.S. federal government also contributed $20 billion in grants and loans for the construction and upgrades of Intel’s plants in Arizona, New Mexico, Ohio and Oregon.

Dividend Stocks: Intel’s new plants will meet growing demand for specialized chips

The new facilities, which should begin operating as soon as 2027, will help cut the U.S.’s reliance on advanced chips made by firms in Taiwan, South Korea and other countries. Right now, 80% of the chips used in the U.S. come from Asian suppliers.

For Intel, the new plants will help it take advantage of the growing demand for advanced chips to power artificial intelligence software applications.

In the first quarter of 2024, Intel’s revenue rose 8.6%, to $12.72 billion from $11.72 billion a year earlier. That revenue gain was mainly due to stronger sales of chips for personal computers and datacentres. Thanks to a cost-cutting plan, Intel earned $759 million, or $0.18 a share before unusual items in the quarter. That’s a big improvement over the year-earlier loss of $169 million, or $0.04 a share.

As part of its turnaround plan, Intel is concentrating on more-promising technologies such as artificial intelligence (AI). Its research costs in the latest quarter rose 6.6%, to $4.38 billion (34.4% of revenue) from $4.11 billion (35.1%) a year earlier.

Thanks to improving computer sales and that cost-cutting plan, the company’s earnings will probably rise from the expected $1.09 a share for 2024 to $2.06 in 2025. The stock trades at a reasonable 15.5 times that 2025 forecast.

Recommendation in Dividend Advisor: Intel Corp. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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