Wednesday, February 24, 2016

INTC Just Mises for 2016

I am long INTC and I sell options on this stock quite often.   In this post, I apply my 2016 criteria to INTC to determine if it can be included in the 2016 portfolio and/or if I will add to my position.

Intel started paying dividends in 1992. In 2011, 2012, and 2013 the yield was high enough that INTC was included in my portfolios as a Dividend Machine.   INTC, of course also met all the other criteria including EPS (earings per share) being greater than the dividend paid out, recent dividend growth and a strong balance sheet as measured by D/E (debt to equtiy) ratio.

In 2014 and 2015, INTC slowed the dividend growth plus the yield was less than I wanted during those years and therefore INTC was not a Dividend Machine in 2014 or 2015.

I am again looking at INTC through the prism of my 2016 goal of adding stocks that are both solid income producers but also have a bit of growth.  The growth feature helps to stimulate interest from call options buyers.   If they think a stock is growing, they are more likely to pay nice premiums for covered calls and this adds to the investor's income.  

INTC 2016 Criteria

In 2016 I changed the criteria I use to screen for stocks.   I will accept less yield in exchange for some growth and covered call income opportunities.   Interestingly, with INTC, I do not have to sacrifice yield as INTC is yielding over 3.5% (3.61% as of 2/23/2016.)

I still want to keep risk at a minimum so I want a stock that has EPS greater than dividend paid out.  I still want a D/E ratio of 1 or less or within industry standards.   INTC passes the test on these two measures.  EPS = $2.34 and dividends paid out during the same period - $.96 and D/E ratio is .3711.

Dividend growth is critical to we income investors.  While the official inflation rate is low, my personal expenses are going up.   Airline travel, car rentals, dining out as well as home owner maintenance expenses, insurance and taxes are all going up. 

A stock needs to show an average annual dividend growth of 4% or more to make the 2016 portfolio.  Even if a stock's dividend raises stalled for a few quarters then picked back up, if the stock has averaged a 4% dividend growth rate over the past 5 years, I will include it in 2016.   INTC passes this test as well with an average dividend growth rate of 10.48%.

Revenue growth over a more recent period of three years is a new metric.   When revenues grow, EPS tend to grow and dividend growth follows.   Moreover, revenue growth suggests to covered call buyers that they are getting a deal by paying us a premium to buy the stock at a set strike price as they think that price will be greater than the strike before the call expires.

INTC falls a touch short of my criteria for revenue growth, but not by much.   I would like to see an average of 4% and Intel comes in at 3.78%. 

Regarding covered calls, INTC often times has covered calls.  However, it is important to note that when INTC held their dividend stable for a couple of extra quarters before resuming increases, no calls were worth selling.

Today, INTC has a few calls of interest and I have presented one in the table below.

INTC 2016 Portfolio Screening Criteria Table

The fundamentals of Intel, symbol INTC are presented in the table below.


Consider INTC for the income producing portion of your portfolio.  Although it is just a touch shy on revenue growth to be included in my 2016 portfolio, I will be adding INTC.

M* TheMoneyMadam

Disclosure:   Long INTC with calls