Intel (INTC) recently announced a dividend increase of 16%, changing the quarterly dividend to 21 cents per share, from 18 cents per share. This is unique, as it is the second increase Intel has made to its dividend in the past six months. Intel already had a relatively high yielding dividend at 3.1% before this announcement - now, with the closing price of $23.71 yesterday, the yield is closer to 3.5%.
Interestingly, for those who invest in the system, this higher yield places Intel into the Dogs of the Dow category, at the rank of #5 according to Stockpickr. They haven't updated Intel's yield yet, but if you look at the list and assume a 3.5% yield, you can see it falls at number 5. Personally, I believed that the stock was already undervalued even before Intel achieved this rank, but a new dividend hike makes Intel seem even more appealing. Perhaps that is what management is going for.
In my mind, however, there are probably some better things that Intel could currently be doing with their money. If they could save up some hoard of cash for a while, they might be able to buy a competitor such as Arm Holdings (ARMH), which would be incredible for Intel.
With Arm, they would finally get into developing products for smartphones and tablets in a big way - in tandem with Apple (AAPL) for instance. There may be legal repurcussions I'm unaware of pertaining to monopolies, as there aren't a lot of chip makers in this space. Had Intel purchased Arm, or at least another chip producer rather than McAfee not too long ago, I think that would have made more sense. But we will see what comes out of the McAfee partnership.
Regardless of potential acquisitions, Intel still has a huge market share of computer processors, around 80% according to some studies. This makes Intel nearly a monopoly in the computer space anyway, which certainly helps keep revenues flowing and makes this a very stable company with reasonably projectable profits - so a dividend hike is acceptable here. And with some of Intel's new technologies, such as the 3D Chip, they may yet break into new markets such as smartphones and tablets more productively.
If this is the case, we may be able to see more impressive dividend hikes in the future. Intel actually has a very good history of raising its dividend, with an average increase of 14.5% for each of the past 5 years, not including this most recent increase. At this rate however, in another 5 years Intel's dividend could be $1.65 per share annually! As long as Intel is able to stand up to competitors reasonably well, I wouldn't be too surprised to see this happen, and it is very strong dividend growth indeed.
Since Intel has the potential for growth into some new markets, and has a very good hold on the market it primarily operates in, the company could also continue to have reasonable growth in addition to its dividends. Any increase in income can easily be transferred to the dividends, and significant increases can result in surprise announcements much like the most recent one that add even more. This is why I consider it to be a good dividend growth investment at these levels.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC over the next 72 hours.
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