Given the dip in the US and Canadian markets today, I took advantage of the buying opportunity to purchase some shares of Intel for my RRSP. Given I wrote a previous post about why I was not comfortable buying Intel shares, I thought I'd give you a peak inside my decision process that caused me to change my mind today.
- Intel's total revenues decreased by about 1% in FY12 vs FY11 as more customers are opting for tablets and smartphones, instead of PCs where Intel has a dominant position as a chip maker.
- Although Intel is finally making in-roads into the smartphone market, they don't appear to be capitalizing in the surging demand for tablets.
- A 4.25% dividend yield, a 39.5% payout ratio, and an average 11% dividend growth rate over the last 5 years.
- A growing cash balance (supported by strong free-cash-flow generation) that is in excess of total external debt.
- Issuer ratings of A+ and A1 from S&P and Moody's respectively.
- Dominant market share and a history of investing heavily in R&D.
In short, I think Intel will be able to invest in R&D and acquisitions that will enable them to maintain their strong market chare in the PC chip market, while allowing them to enter the tablet and smartphone markets. The company has extremely solid financial metrics, and this should provide them with the flexibility to increase dividends and respond to competitive threats going forward.