Intel Corp.'sINTC share price went up more than 3% to $34.30 following the announcement of a dividend hike and an improved sales guidance for fiscal 2016 at its annual investor meeting.
Intel's board approved an 8.3% hike in its annual dividend to $1.04 per share from the year-ago figure of 96 cents. The date of payment of the increased dividend will be announced in the first quarter of 2016.
The strength of Intel's business model is reflected in its strong cash generation capabilities and commitment to return value to shareholders. We believe that the continuous increase in dividends will inspire investors' loyalty as a result of higher returns from the stock.
Intel initiated the guidance for 2016. It projects sales to grow in the mid-single digits and gross margin to be about 62% (+/-2 percentage points). Research & development plus MG&A expenditure is expected to be down half a point as a percentage of revenues. Capital spending is expected to be around $10.0 billion (+/- $500 million) down from $10.5 billion projected for 2015.
Analysts had projected sales growth of 4%.
Why the Optimism?
Intel remains one of the largest semiconductor chipmakers in the world. Just like its peers, the chipmaker's revenues are also being pressured by weakened demand for personal computers.
However, Intel's CEO Brian Krzanich stated that the company will continue to grow even if the PC market does not improve. He believes that Intel's growing position in areas like the data center, Internet of Things (IoT), memory businesses is maintaining its strength despite the weakness in PC market.
According to Krzanich, Intel's growth strategy is to utilize its core assets to move into profitable and complementary market segments. He described Intel's Client Computing business as a strong foundation, which delivers healthy profits and critical intellectual property to the rest of Intel. The Data Center, IoT and Memory businesses are the growth engines.
With cloud computing growing bigger each day, Intel's increasing demand for chips at data centers and other products outside the PC market must have driven the optimistic projection.
Moreover, the new Skylake family of chips and Microsoft's MSFT Windows 10 operating system remain the positives for Intel.
With strong guidance for 2016 and a dividend hike, Intel should be able to at least maintain its current Zacks Rank #2 (Buy).