Intel’s steadily rising cash flows support its dividends
Exciting times are ahead for Intel – strong 4Q14 earnings (Part 10 of 16)
Intel’s dividends and buybacks
In Intel’s 3Q14 earnings, we saw that 2014 experienced the biggest buyback announcements from leading corporations—including Apple (AAPL), Intel (INTC), Wells Fargo (WFC), Caterpillar Inc. (CAT), and Monsanto Company. Each of these buybacks totaled $10 billion or more.
In fiscal 4Q14, Intel generated ~$5.8 billion in cash from operations, or CFO. It paid dividends of $1.1 billion. It used $4 billion to repurchase 115 million shares of stock. For fiscal year 2014, Intel generated ~$20.4 billion in cash from operations. It paid dividends of $4.4 billion. It used $10.8 billion to repurchase 332 million shares of stock.
You can consider investing in the Market Vectors Semiconductor ETF (SMH) to gain exposure to Intel. Intel accounts for about 19% of SMH.
Cash and cash flows
In 2014, Intel’s free cash flow was $10.2 billion. For 4Q14, cash and short-term investments, debt, and free cash flow stood at $14.05 billion, $13.7 billion, and $3.54 billion, respectively. The company’s strong cash flow generation allows it to hold significant cash. It can invest in new product areas—as we discussed earlier in this series.
Sluggish growth hurt Intel’s dividend payout
As the above chart shows, Intel hasn’t increased its payout in the last couple of quarters. The struggling PC market and Intel’s sluggish growth in recent years weighed on its historical dividend growth rate. The company spent cash to pay dividends and buy its own shares back.
A natural concern about Intel’s massive buyback is that apart from cash, the company took in debt to fund it. Most of its debt is long term. If it continues to do this, soon it will be out of funds to support its own growth activities.
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