Intel’s New Dividend and Its High Dividend Yield Imply Good Value for INTC Stock

Dividend Stocks

On Jan. 26, Intel Corporation (NASDAQ:INTC) raised its dividend per share (DPS) by 5% when it announced fourth-quarter (Q4) and 2021 earnings. As a result, I wrote on Feb. 3, a month ago, that INTC stock was undervalued by at least 19%. This was because it was trading at $49.51 on Feb. 3.

The Intel (INTC) logo in blue on a black screen.

Source: Kate Krav-Rude / Shutterstock.com

However, as of Mar. 3, a month later, INTC stock was actually lower at $47.93 per share. Obviously, this was likely due to the market downturn from the Russia invasion of Ukraine.

Nevertheless, now that the annual dividend is set at $1.46 per share, its dividend yield is now higher at 3.04%. This can be seen by dividing $47.93 by $1.464.

Intel Stock Should Have a Lower Yield and Higher Price

This is a significantly higher yield than Intel has had in the past. For example, Morningstar reports that the average dividend yield for the past 5 years has been 2.48%.

This implies that INTC stock is worth at least $58.87 per share, or 22.8% over the price on March 3. This is the result of dividing $1.46 by 2.48%. The result is $58.87 per share.

Similarly, Seeking Alpha reports that Intel’s average dividend yield over the last 4 years has been 2.43%. That is similar to Morningstar’s (NASDAQ:MORN) 2.48% level over 5 years. It implies a similar price target of $60.08, or 25.3% higher. This is slightly higher than Morningstar’s implied price since the dividend yield is lower.

The average between these two price targets is $59.48, or 24% over today’s price.

Therefore, the question is: when will INTC stock start to move towards this higher price? After all, it is always possible that the stock could end up falling further. This would give it an even higher dividend yield, but also take it further away from the price target.

Catalysts For a Turnaround for INTC Stock

There is no way to predict this. Unless we can identify a clear catalyst in the short-term, most value investors have resigned themselves to do one thing. That is: take advantage of cheap stock prices by averaging down as the stock price falls. This implies that the investor should not put all their investing money in any stock at one position price.

Moreover, Barron’s magazine reported on Feb. 23 that a major bearish analyst has recently changed his mind on Intel. The Raymond James analyst, Chris Caso, changed his recommendation to Market Perform from Market Underperform.

That is practically the same as saying, “Buy,” in analyst speak. Barron’s wrote that he is not necessarily bullish on the stock. He just feels that the bearish thesis on the stock has largely played out.

For example, he pointed out that the company guided analysts to expect negative free cash flow for the next three years. That is not normally a very good sign for a stock.

But the market already has discounted this into the huge drop in the last year. INTC peaked at $68.49 on Apr. 12, but dropped by 30% since then to $47.93 as of Mar. 3.

Where This Leaves Investors In INTC Stock

Analysts have generally higher price targets for INTC stock. For example, Yahoo! Finance indicates that the average price target of 41 analysts is $54.08 per share, or about 13% over the price of $47.93. Yahoo! Finance uses Refinitiv’s analyst survey to set its price targets.

Moreover, Seeking Alpha reports that the average of 41 analysts is $54.26, very close to the Refiniv price target average. However, it also shows that the upper end of the range is up to $72.20 per share.

These recommendations are slightly lower than my price target of $59.48. I used its dividend yield as the main criteria.

However, so far, I have not been able to identify any kind of catalyst that could push the stock higher towards this price target. Over time, say several years, the stock should be tethered to this price target. But without a clear catalyst pushing it there, it may take time.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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