Friday, December 14, 2012

Recent Buy by Dividend Mantra

The "Fiscal Cliff". You can't watch television or read a newspaper without hearing or seeing news on the recent developments in regards to the cliff. Washington appears to be dysfunctional, and appears to enjoy it as individual lawmakers try to leverage partisan policy. This is evident on both sides of the aisle. I'm personally not someone who follows Washington very closely. As such, I couldn't care less what happens with regards to whatever mania/news comes piping out from headquarters U.S.A.

What I do care about is investing for the long-term. Our nation needs to cut spending and increase revenue on a pretty grand scale and whether this happens through negotiations or the cliff matters not over the very long-term. I'm not really paying attention to Washington. I continue to stay true to my course and inject fresh capital into the stock market by buying attractively priced dividend growth stocks with solid fundamentals. I'm continuing to buy part ownership in companies that have great prospects for future profitability through whatever economic climates persist.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I purchased 70 shares of Intel Corporation (INTC) on 12/5/12 for $19.85 per share. This transaction adds to my current position of 170 shares, bringing the total INTC position to now 240 shares. 

This buy may surprise some readers. I'm shy when it comes to tech companies in general, and exposing myself to a fairly large position with just one tech company, especially one that is embattled with slowing PC sales and a CEO retirement, is really not my modus operandi. However, an extremely lengthy and informative article over at Seeking Alpha titled Intel: Inside Track On The Next Decade gave me a number of reasons to increase my stake. Thanks Dividend Growth Machine for pointing this article out. 

I wouldn't let just one article sway my investing decisions ever, but I've been looking at INTC recently with intent interest. I find it an extremely undervalued on almost every metric you can use, whether you use historical INTC data or peer valuations. The only thing that was causing me hesitation about buying additional shares in Intel was my already large weighting and my personal bashfulness towards technology as an industry. But, the above article made a great case for the company and I actually personally view the retirement of outgoing CEO Paul Otellini as a good thing. Under his watch INTC has been a bit sluggish in the shift from the PC business it has long dominated to mobile computing, and a fresh perspective at the helm could offer a clearer vision for the future. Another way to look at Intel's current predicament is that it has less than a 1% market share of smartphones and tablets, so the growth potential is enormous.

Also, it should be noted that the above article highlights the fact that even if Intel doesn't really grow much from here, even if it stumbles tragically in its bid for establishing a growing foothold in the mobile computing space, INTC would still provide for rather strong shareholder returns simply based on PC/server businesses, the robust dividend and also share buybacks. So, no growth from here would be counteracted somewhat by the extreme undervaluation on the shares. Valuation, as always, is paramount. This isn't to say that there is no risk in INTC shares. Rather I view the current predicament as a company that is going through a transition and has the foundation to really excel in the future. It could go the other way and INTC could experience a long contraction in its core business, but I feel that the death of this company would be seen a mile away and would provide ample time for shareholders to move on to greener pastures. The mobile computing business is relatively young and the opportunity is still ripe, so Intel still has time to turn the corner.

This purchase adds $61.60 to my annual dividend total based on a current $0.22 quarterly payout. INTC is cheap, with a P/E ratio of 8.81 a P/S ratio of 1.9 and  P/B ratio of 2.0. The balance sheet is very strong, which adds an element of conservatism that I really like. The yield on my purchase of 4.43% is up there with utilities, so there are many attractive elements of INTC shares currently. That high yield is backed by 9 years of consecutive dividend growth and a 5-year dividend growth rate of 14.4%.

Overall, I'd say this is a riskier proposition than some of my other larger holdings which is ironic considering that Intel is considered a blue chip tech stock as it's currently one of the 30 stocks in the Dow Jones Industrial Average. But winds change, and this is certainly never truer than in the technology industry. However, I also feel that the extremely attractive valuation makes up for many of the inherent risks in INTC shares right now.

With this addition I still have 29 positions in my portfolio.

Some analyst opinions on my recent purchase:

*Morningstar currently rates INTC as a 4/5 star valuation.
*S&P currently rates INTC as a 3/5 star Hold.

I'll update my Freedom Fund in early January to reflect my recent addition.

Full Disclosure: Long INTC

What are you buying?

Thanks for reading.

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