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Investors tend to buy a stock for two main reasons: capital appreciation and dividend yield. Those holding Intel (NASDAQ:INTC) may be disappointed on both counts. The stock is down over 55% during the past five years. Intel previously had a dividend yield of 1.72% and a yearly payout of $0.50. It wasn't a large dividend, but it was still an essential contributor to the value of owning the stock.
For now, at least, that's in the past. When Intel reported earnings last week, it paused its dividend. "We are taking the avid step of suspending the dividend at the beginning of the fourth quarter, recognizing the importance of prioritizing liquidity to support the investments needed to execute our strategy," said CEO Pat Gelsinger on the analyst call. "We reiterate our long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels."
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The company is also planning a 15% head count reduction as part of its goal to achieve $10 billion in cost savings in 2025. Second-quarter revenue was down 1% year over year to $12.8 billion. Gelsinger called the second-quarter results disappointing and said the second half the year is looking weaker than expected. Analysts reacted swiftly, cutting price targets, and analysts from Raymond James and B of A Securities downgraded the stock.
While Intel's results sent reverberations around the semiconductor market, it's not necessarily a sign that other semiconductor stocks are in danger of cutting their dividends. Intel's issues may be an isolated case, not a reason to bail out the stock. While pausing a dividend is a significant decision, Intel is committed to getting back on track.
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Texas Instruments (NASDAQ:TXN)
Texas Instruments has paid a dividend for 20 years, which has grown by 24% since 2004. Its current annual payout is $5.20, its yield is 2.69%, and the stock has risen 53% over the past five years. It reported earnings in July, and revenue was down 16% year over year due to ongoing weakness in the industrial and automotive categories. Texas Instruments believes a bottom may have been reached within both markets. Texas Instruments makes analog and embedded processing chips. These chips are the building blocks of the semiconductor world. Texas Instruments is sheltered from the cutting edge, and if the AI boom falters, it won't greatly impact the company. The company's diversification across multiple industries with cycles that move independently of each other is also a key advantage. Analysts rate Texas Instruments a consensus hold and, after the earnings, multiple analysts raised their price targets.
Broadcom (NASDAQ:AVGO)
Broadcom Inc. (NASDAQ:AVGO) designs and supplies a broad range of semiconductor, software and security solutions. Its position supporting cloud, data center, and networking software exposes it to the artificial intelligence industry, which has recently boosted results. In its most recent quarter, revenue from AI products hit a record $3.1 billion, which offset the weakness it is seeing in the telecommunications industry. It has paid a dividend for 12 years with a dividend yield of 1.43% and an annual payout of $2.10. It recently did a 10-for-1 stock split. The company raised fiscal year 2024 guidance for consolidated revenue to $51 billion and adjusted EBITDA to 61% of revenue.
The semiconductor industry is highly cyclical, so company returns may not always be consistent. However, Texas Instruments and Broadcom have proven that they can weather the markets’ ups and downs and still come through for investors. It's now up to Intel to prove that its cost reduction plans will pay off over the long haul.
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