Intel (Nasdaq: INTC) can be considered a defensive tech stock which currently yields a dividend around 3.7%. The stock had been rising until Goldman Sachs advised a Sell on May 19.
Intel has loads of excess of cash. Cash holdings are approximately 5% of sales, which is significantly more than the company needs for operations. This excess cash gives Intel the ability to expand research and development, pay out a higher dividend, or finance growth via acquisitions. Intel has miniscule debt levels (0.05 debt/equity ratio). Earnings growth expectations average 11.1% over the next five years. A 24% return on investment capital indicates that Intel is well managed and utilizes its resources efficiently.
Another reason one see INTC as a safe stock is its aggressive dividend growth record. For the second time in the last six months, INTC has increased its quarterly dividend. First it went from 15,75 t o18.12 cents per share.15.75 cents. Then it went from 18.12 to 21 cents per share. Just 18 months ago, Intel raised the dividend from 14 cents to 15.75 cents per share, so that's a 50% increase in a year-and-a-half.
Intel also holds a strong monopoly for its main product of micro processors. Intel controls 80% market share. I would consider INTC dropping to 20 a share unlikely but not terrible if it does if you want to own the stock.
My analysis shows that the best time to buy tech stocks is just before Labor day. Since we are in the early part of June, in lieu of buying the stock, a strategy of selling Puts (naked or with cash credit) provides a means of getting a premium, and if struck, buying the stock at a lower level.
Currently the Aug20 20 puts are selling for ..35 - .40 and the Aug 20-21 puts are asking .60 - .61 each.
If INTC does drop to 20 or less or example, you would be assigned to buy the stock at 20. That's not a bad thing as INTL at 20 a share yields a 4.2% dividend, your basis would be at 19.60- 19.70 which will yield 4.3%. Additionally, owning the stock on Aug 20 gets one in at the right seasonal time to own Tech.
One can always close out the position with a close-to-buy-put if owning the stock is not what you want.
Intel also holds a strong monopoly for its main product of micro processors. Intel controls 80% market share.
Footnote: About Selling Puts without owning the underlying stock:
1) Put sellers are obligated to buy the underlying stock if the put buyer decides to exercise the right to sell2) it is a good way to acquire a stock at a specific price if the near term market forecast is bearish while the long term forecast remains bullish.
3) At expiration: put expires and premium is kept as income
Discloser: I do not hold a position in INTC yet but have a limit order in for Sell Puts.
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