Despite recently slashing its dividend, Intel (INTC) still offers long-term value to patient investors according to Jason Clark, contributing editor of The Prudent Speculator.

Beleaguered chipmaker Intel whacked its dividend from $0.365 per share quarterly to just $0.125 per share. Some are surprised Intel decided to keep the dividend payment going at all, given the company’s need for cash to support its turn-around effort.

Via press release, Intel offered four points related to its capital allocation plans:

  • Delivering $3 billion in cost savings in 2023, on the path to $8 billion to $10 billion in annualized savings by the end of 2025. This includes the difficult steps previously taken to reduce headcount and the company’s ongoing efforts to reduce other operating expenses.

The company is also temporarily reducing compensation and rewards programs for employees and executives, and the board has decided to temporarily reduce its compensation as well. This is in addition to the exit of seven non-core businesses since early 2021, as the company continues to sharpen its focus and drive a best-in-class operating structure.

  • Operating net CapEx intensity in the low 30% range in 2023 as the company prioritizes investment in strategic capital and adjusts the timing of capacity expansion in response to near-term changes in demand.
  • Establishing an internal foundry model that will help Intel unleash the structural advantages of IDM 2.0 with a competitive cost structure and optimized operating model while providing further transparency into its strategic progress and performance against industry benchmarks.
  • Advancing its Smart Capital strategy, which allows Intel to access new pools of capital that provide additional financial flexibility to invest for the long term while executing its transformation. This includes the innovative Semiconductor Co-Investment Program (SCIP), for which Intel intends to announce a second partner later this year.

While the points aren’t particularly profound, or even easy to accomplish, our observation is that CEO Patrick Gelsinger is working with great purpose to right the ship.

We continue to believe Intel is not dead, as does Mr. Gelsinger, who just bought 9,700 INTC shares at $25.68, even though the road ahead is full of potholes, challenges and steep cliffs. At this point, the only thing saving Intel from our most risky classification in our Target Price engine is its relatively strong balance sheet.

Of course, the heightened risk factor results in a higher Target Price, which helps ensure that we are compensated (by more capital appreciation potential) for greater risk-taking, given that less of our expected total return will come from dividend income. Our Target Price for INTC is $39, while the reduced yield now stands at 2.0%.

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