The stock market in 2022 continues to present buying opportunities. After seeing the stock market climb for 12 months straight in 2021, it is refreshing to see some red days. Finally, some great undervalued dividend stocks to buy at a discount. This week, Intel (INTC) released its earnings and the stock price plummeted. In this article, I am going to explain why I decided to add to my position in Intel this week!

Why Is Intel’s Stock Price Sliding?

The heart of earnings season is upon us. Intel (INTC) has had an interesting year. The company has been fighting several headwinds. The major story, and headwind, the company has faced is the supply chain shortage.  Throughout 2021, the company has consistently reported semiconductor supply chain issues. Obviously this is a major issue for the company. Chip shortages in the global supply chain have left companies like Intel, and car manufacturers, scrambling to meet increased demand for their products. The demand quickly outgrew supply, leaving these companies between a rock and a hard place until demand decreases or supply increases.

The chip shortage has caused uncertainty for the company’s expected results over the next few years. It was a major talking point during the company’s recent earnings call.  Unfortunately, according to management, the company will be facing supply chain issues until 2023.  As a result, the company’s stock price has declined over 14% in the last 52 weeks.

Luckily, the reinforcements are coming. You know I love companies that represent our home state, Ohio, right? Well, Intel announced a major investment in the buckeye state this last week. The company is going to spend $20 billion to build a state of the art chip manufacturing plant nearly Columbus, Ohio.

In addition to the Ohio plant, the company also announced expansion of its Arizon facility. This is huge for many reasons. The company will no longer be reliant on oversees suppliers or plants and can begin taking control of their supply chain, especially since chips will be manufactured in the United States. Sure, it will take some time to build and open. However, the company is working hard and investing a ton to fix the supply side issues that are plaguning the company in the short-term.

The chip shortage wasn’t the only reason the company’s stock price is sliding after it released earnings on January 26, 2022. Despite strong revenue and earnings figures, the company’s earnings release and earnings call mentioned a few items that caused concerns.  The company experienced a 7% decline in its largest business unit, Client Computing. Despite the fact the unit’s $10.1b revenue beat analyst estimates, the decrease was concerning, per Marketwatch, as it could indicate the company could eventually face demand issues as well.  The PC Boom during the pandemic helped Intel’s results over the last couple of years. If the boom comes to a swift end, the company’s top line and bottom line growth could be severly impacted. You don’t want supply AND demand issues, after all.

In addition, one other item to note is that the company’s gross margin fell from 60% to 55.4%. Still strong margins, but not the trend you want to see.

Taking a step back, it is still hard to ignore the sheer size of the company. Despite the bad news, the company still recorded $74.7b in revenue during 2022. Earnings per share was still $5.47 per share.  The balance sheet is strong as well, with over $28b in very liquid assets (cash, short term investments, and trading assets). Their operations also produce a ton of cash, with nearly $30b in cash flow from operations during the year.

There was one other MAJOR announcement this last week. That’s right, despite some of the negative news, the company STILL increased its dividend. That’s right, Intel announced a 5% dividend increase!

So sure, the company faces some short term headwinds; however, I still love the financials. Still, despite the tough year for Intel, the company was still feeling confident enough in its future earnings and cash flow that it still increased its dividend. So naturally, I have to see if the company is an undervalued dividend stock to buy.

Dividend Diplomats Dividend Stock Screener

After a deep dive into earnings, it is time to see if Intel is an undervalued dividend stock. After all, the company plummeted after its earnings release. So lets run Intel through the Dividend Diplomats Dividend Stock Screener after the slide. We use 3 SIMPLE metrics to evaluate every dividend stock. The goal of our stock screener is to identify if a stock is an undervalued dividend growth stock to buy.

Watch: Our Simple, 3 Step Stock Screener

Here is a rundown of the 3 metrics of our stock screener:

1.) Price to Earnings Ratio Less than the S&P 500. Currently, the S&P 500 is trading at a P/E Ratio of 24.67X. Last year, the S&P 500 was trading at a multiple of 35x – 40x, which is insanely high! Historically, on the other hand, forward earnings are between 20X and 25X.

2.) Dividend Payout Ratio Less than 60% (Although we think a perfect payout ratio is 40% – 60%). The payout ratio measures the safety of the dividend. This ensures the company can continue growing its dividend during good times and bad. That’s why it is a critical metric in our stock screener that we must evaluate!

Read: Dividend Aristocrats with a PERFECT Dividend Payout Ratio

3.) History of Increasing Dividends. We review this metric by reviewing the company’s five-year average dividend growth rate and consecutive annual dividend increases. Since we are long term investors, it is important that a company increases its dividend consistently!

Bonus: Dividend Yield. We like to also throw in a bonus metric to our dividend stock analysis. Yield does not drive our decision; however, we would be lying if we said we completely ignore dividend yield.

How Does Intel (INTEL) Perform in Our Stock Screener?

For this analysis, we will use Intel’s stock price $48.05 (January 27, 2022 close). Analysts are projecting forward EPS of $3.70 per share. The company’s annual dividend is $1.46 per share. Now that we have the inputs for our analysis, let’s dive into the results.

1.) Price to Earnings Ratio: 12.98x. The stock is trading at less than half the valuation of the S&P 500. Check!

2.) Dividend Payout Ratio: 39.4%. A very strong payout ratio. There is still plenty of room to continue increasing its dividend going forward. 

3.) History of Increasing Dividends:  After this last dividend increase, the company has increased its dividend for 8 consecutive years. The company’s 5 year average dividend growth rate is just under 6%.

4.) Dividend Yield: 3.03%. Wow. After the company’s slide, their dividend yield is over 3%. Enough said!

Summary – The Stock Purchase

Clearly, Intel performs well in the stock screener. Over the last year, I managed to build a nice position for myself (54 shares) and my wife (50 shares). The positions are very solid, but not full by any stretch. There is plenty of room to keep growing my position. Especially since the company is showing strong signs of undervaluation and has strong financials.

So you know what we did, on January 27, when the company’s stock price tumbled 7% after earnings were released I added 10 shares of Intel at $48.20 per share to my position. Now, I own 64 shares! You know what, we may continue growing our position as well if the stock price hangs below $50 per share in the short term. The ex-dividend date is the beginning of February, so I still have a week or so to capture the March 1 dividend with an additional purchase. I’m pumped up to keep buying!

Are you buying Intel at its current price after earnings? What do you think about Intel in the short term and long term? What other stocks are you buying while the stock market is down?

Bert