A new strategic plan to build chips in the USA, Germany and Poland should boost Intel over the long term.
For now, it’s conserving cash with a dividend cut to help fund the factory costs. While unwelcome in the short term, the move should pay off over the long run.
Meanwhile the stock trades at 19.9 times the company’s 2024 earnings forecast.
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INTEL CORP. (Nasdaq symbol INTC) is the world’s leading maker of computer chips: its products power 65% of all personal computers and 80% of all datacentres.
Intel continues to make progress with its new strategic plan, which includes a new $20 billion chipmaking complex in Ohio and a $15.3 billion expansion of its facility in Arizona. The company expects to complete these projects in 2025.
Those new plants should improve Intel’s technical expertise and expand its ability to make chips for other companies.
Those include Nvidia Corp. (Nasdaq symbol NVDA), which is considering using Intel to make its next-generation chips. While still in the development process, Nvidia’s test chips produced so far look promising. That increases the likelihood of Intel signing a long-term supply deal with Nvidia, particularly as that company aims to cut its reliance on chipmakers in Taiwan.
Dividend Stocks: Transactions will fund Intel’s new plants and future cash flow
Intel is now selling a 10% stake its IMS Nanofabrication business to Taiwan Semiconductor Manufacturing Co. (New York symbol TSM). Based in Austria, ISM makes technology that helps manufacturers produce faster chips.
The company has not yet said how much it will receive. However, based on an earlier deal to sell 20% of IMS to private equity investment firm Bain Capital at the same price, Intel will receive a total of $1.3 billion under these two deals. To put that amount in context, Intel earned $547 million, or $0.13 a share, in the second quarter of 2023.
These sales will cut the company’s stake in IMS to 70%. Bringing in new investors will also help this business keep improving its products, and make it easier to licence this technology to rival chipmakers.
The cash will help fund Intel’s plan to build two new chipmaking plants in Germany. In all, these facilities will cost 30 billion euros (about $33 billion U.S.). However, government subsidies of 10 billion euros will help offset that cost.
Separately, Intel also announced that it would build a new plant in Poland at a cost of $4.6 billion.
This large strategic plan is starting to work. For example, Intel recently secured a new deal with U.K.-based chip designer Arm to make chips for smartphones and other devices.
To conserve cash for these plans, Intel cut its quarterly dividend by 65.8% with the June 2023 payment to $0.125 a share from $0.365. The new annual rate of $0.50 yields 1.4%. The lower payment should save it $4 billion annually.
As a result of this cut, Intel’s dividend has now declined an average 16.1% annually over the last 5 years. The company’s TSI Dividend Sustainability Rating is now Average.
Recommendation in Dividend Advisor: Intel Corp. is a buy.