Intel Corp. (NASDAQ:INTC) stock just reported excellent fourth-quarter 2021 earnings on Jan. 27 and its 2021 full-year earnings. In addition, the company also reported a huge amount of free cash flow (FCF) — $11.3 billion — for the full year. As a result, INTC stock is likely to rebound significantly from where it is presently trading.
For example, in the last month Intel stock has dropped out of bed. It peaked on Jan. 11, 2022, at $55.91. But then suddenly through the month of January, it dropped down to a low of $47.73 as of Jan. 28.
But now INTC stock is starting to rebound — at $49.51 as of Feb. 3, 2022. One reason is that investors will adjust the stock to its historical average valuation metrics.
Intel Stock’s Value Using Its Historical Dividend Yield
For example, Intel increased its annual dividend by 5% to $1.46 per share. I had predicted that it could do this in my previous article on Dec. 17.
For example, this Intel dividend of $1.46, divided by its price today of $49.51, gives INTC stock a dividend yield of 2.95%. But this is well above its average dividend yield. That implies that it is too cheap. For example, if the price rises, that will lower its dividend yield.
And that is the point. The average dividend yield Intel has had in the last four years has been 2.42%, according to Seeking Alpha. This is lower than its present 2.95% yield, so it implies that for INTC stock to reach this average yield it will have to rise. But by how much?
Here is how we can determine that. If we divide the new $1.46 dividend per share (DPS) by its average yield of 2.42%, the resulting figure is $60.33 (i.e., $1.46/0.242=$60.33).
So this implies that INTC could rise at least by 21.85% (i.e., $60.33 target/$49.51-1=0.2185) from today. And remember, the 2.42% dividend yield is just an average metric.
For example, if the stock reaches a 2.0% dividend yield, this implies that it could rise to $73.00. This is seen by dividing the $1.46 DPS by 2.0%. The $73 price target is 47.4% over today’s price.
What Analysts Think INTC Stock Is Worth
So, we can expect that there is a good chance that Intel will rise to between $60.33 and $73 over the next year, based on the new dividend hike. That puts its average price target at $66.67 per share or 35% over today’s price.
S0me analysts tend to agree with me. For example, Yahoo! Finance indicates that the average price target of 42 analysts is $55.94 per share or 12% over the price of $49.51.
Moreover, Seeking Alpha reports that the average of 42 analysts is $55.94, although it also shows that the upper end of the range is up to $70 per share.
Even Morningstar has an implied higher price target. For example, the Morningstar dividend tab for Intel shows that the average 5-year dividend yield has been 2.48%.
So, if we divide the $1.46 DPS by 2.48%, the price will have to rise to $58.87 (i.e.,$1.46/0.0248=$58.87). That is 18.9% higher than today’s price. It means that Morningstar’s historical dividend yield metric leads to a 19% higher price target.
Can Intel Afford the Dividend?
Keep in mind that this is no guarantee that Intel will rise to $60, as my analysis implies. For example, it could keep on falling from its present price.
But in the end, we know that the dividends help keep a stock price tethered to its underlying value. For example, the 2.42% average yield over 4 years and the 2% yield I think it could rise to are based on historical price patterns.
What is important is whether Intel can keep paying these dividends. That is where its powerful free cash flow (FCF) comes in. For example, in the last 12 months, Intel paid out $5.644 billion in dividends, according to its cash flow statement for 2021.
But it’s clear that Intel can afford this since its cash flow operations (CFFO) was $29.991 billion and capex spending was $18.733 billion. Therefore, subtracting its capex spending from CFFO produces FCF of $11.258 billion.
That $11.3 billion in FCF is well more than enough to pay out the $5.6 billion in dividends every year. Even with a 5% increase the dividend cost will be no more than $5.93 billion — still well below the FCF. In other words, Intel has almost twice as much FCF to pay for its dividends.
What To Do
It seems pretty clear that Intel can not only afford its dividend payments but also the INTC stock will rise to a higher price. This is because the stock price will tend to fall to a lower dividend yield, as per its average yield of 2.42%.
Bottom line — expect to see INTC stock rise to around $66.67 or 35% over today’s price — based on its average dividend yield.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance at mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
