Intel Corp is confident enough in the stability of its moneymaking skills to raise its dividend by 15 percent, even as Wall Street braces for a bumpy ride for the technology industry.
The chipmaker’s announcement on Friday comes on the heels of a downcast description of the technology market by Cisco Systems Inc.
Cisco dragged down stocks this week with a warning that government spending — especially at the state and local level — has suddenly turned sluggish.
Many investors are worried that other technology companies are in line for a beating over the next several quarters and that the problems are likely to spread to other industries.
Intel’s dividend hike, the fourth since the recession started in late 2007, is less a reflection of the company’s optimism about the market than a reminder of its unique advantages in the computing industry. It also underscores the fact that many large companies have been sitting on piles of cash for the past three years and pouring some of the money back into their dividends appeases skittish shareholders.
According to Capital IQ Quantitative Research, nearly half of the companies in the S&P 500 have raised their dividend since the end of 2007, while only a fifth have introduced cuts.
Intel itself has recently warned about tough times in its business of selling microprocessors, the “brains” of personal computers and servers, but at the same time, it commands 80 percent of the market for those chips and is in the desirable position of owning its own factories, which means it can make better chips cheaper than its competitors.
Although the factories are expensive, requiring frequent multibillion-dollar upgrades, Intel has been able to put in technological advances — such as new techniques for shrinking the size of the circuitry on its chips — to help the company wring more profit from its chips.
Intel shares rose US$0.32, or 1.5 percent, to US$21.53, but the company’s upbeat comments failed to lift the broader market. The Dow Jones industrial average fell 90.52, or 0.8 percent, to 11,192.58 on news that China might try to slow its surging economy to -combat inflation.
As a barometer for the tech sector, Intel has flashed mixed signals over the past few months.
Back in August, the company cut its quarterly sales forecast, citing “weaker than expected demand for consumer PCs in mature markets,” including the US and Europe. Then, last month, it offered a more encouraging fourth-quarter forecast that met expectations.
Since the recession started, Intel’s quarterly dividend has grown from US$0.1125 cents per share to US$0.1575 cents per share. On Friday, the company announced it was extending that further to US$0.18 cents per share, a total increase of 60 percent over the past three years.
Chief executive Paul Otellini said the company “remains on track to have our best year ever and we continue to generate strong cash flows.”
Intel, whose stock is listed on the Dow Jones industrial average, has one of that group’s highest-yielding dividends, its annual yield currently standing at 3 percent of its stock price.
Intel said the new dividend will take effect in the first quarter of next year.
The company ended the latest quarter with nearly US$15 billion in cash and short-term investments, nearly US$3 billion more than it had the previous quarter.
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