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My Unusual (For Me) 2023 Stock Pick Has Quietly Became a Dividend Champion


My top stock picks for 2023 are a bit out of the ordinary from my previous picks that, over the years, have tended to be very small and sometimes inconsistent names.

My pick this time is a giant stock whose stock has suffered a massive drop in 2022, down 46.5% of its total return.

It’s Intel (INTC) .

For perspective, this was a stock that was worth $68 less than two years ago and closed Wednesday around $26, the same level it was trading at in 2014.

Now, I am determined against attaching a stock’s future prospects to where it has traded in the past. That can be a recipe for disaster, and its recognition is merely opinion. Overzealous investors tend to raise stocks too high for their value, but when high expectations are not met, they can also be punished to a greater extent than they deserve. I think that’s where we are at the moment with INTC.

The stocks are currently trading at a consensus earnings estimate of 13x by 2023, which is actually not too far off from where INTC has traded over the past few years. In 2024, however, the consensus estimate rises to $2.72 per share, for a futures price/earnings ratio of 9.5. That, we can work with (and yes, this is a bit conjecture, but the consensus is a sizable group of 22 analysts).

Bolstering the story is Intel’s 36.5 cents quarterly dividend, which translates to a reasonable 5.6% yield. Intel has been somewhat of a quiet dividend champion over the years and has lifted it up with a compound annual growth rate (CAGR) of 8.1% over the past 15 years. That rate has slowed in recent years to 6.2% over the past seven years.

However, the company has also been active in share buybacks, reducing its outstanding shares by about 13% since the end of 2015, although as of Q3 the company had not repurchased any shares in 2015. 2022. The combination of dividend hikes and simultaneous share buybacks can be powerful. Intel’s long-term shareholders may disagree depending on the length of their holdings.

As of the end of the third quarter, the company still had $7.2 billion in repurchase authorization. In May 2021, the company reported that it would not focus on acquisitions as much as it used to, but that was believed at a time when the stock was trading at $50.

The elephant in the room for Intel is the recession we might have gone through. However, you have to wonder to what extent it has been valued.

Who would have thought we’d ever see INTC trading at just 1.08 times book value and yielding 5.6%? It’s no longer the growth story of previous years, sales and margins slumping, but it still boasts a 19.1% net profit margin over the past 12 months.

I certainly don’t expect the stock to go up straight from here and plan to selectively and opportunistically add to my position throughout the year.

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