Technology stocks in 2018 They made a hit in 2022. In many cases, the overly optimistic expectations of the pandemic have simply come back down to earth. But in other cases, good companies that have consistently paid dividends have been split, pushing the dividend to record levels.
Semiconductor giant Intel (INTC 0.84%) and a telecom company AT&T (T -0.22%) In the year Each faces its fair share of challenges in 2023 and beyond, but dividend investors should avoid ignoring these high-yielding tech stocks.
Intel
For the past two years, most of the chip giant Intel’s shares have been falling under the leadership of CEO Pat Gelsinger. Gelsinger devised an expensive strategy for Intel to double down on manufacturing, regain undisputed leadership in major CPU markets, and build its own world-class foundation. It’s been slow going, and the market hasn’t been very supportive.
With Intel stock down more than 60 percent from its multi-year high, its dividend has hit an all-time high. The dividend yield is set at around 5.7%, which is three times higher than the yield S&P 500.
Investors should not expect real dividend growth for at least the next few years for two reasons. First, the PC industry is going through a severe downturn that is putting pressure on Intel’s finances. And second, because Intel is pouring all available cash flow into growth initiatives. Intel will spend $21 billion on capital expenditures this year, putting free cash flow into the red, and spending will rise through 2024.
Intel is looking to become a major player in a challenging market leader in the foundry business. TSMC. For that to happen, the company has to play some serious discoveries on the front of the production technology. In the next few years, Intel plans to aggressively deploy new processing nodes, which should not only close the gap with TSMC, but also improve the competitiveness of its own products.
Intel has maintained its dividend so far, and the company seems committed to keeping it at current levels. But given the scale of Intel’s planned spending and the uncertainty in the economic environment, there is at least some risk that Intel will eventually cut the gap to free up cash. That risk seems low, but not zero.
Intel’s turnaround efforts in 2010 They need to make some serious progress in 2023. The company will launch its long-delayed Sapphire Rapids server chips in January, putting pressure on its rival. AMD With Meteor Lake PC chips, release the second generation of Battlemage discrete graphics cards and continue your journey towards building a foundational business. Of course, assuming there are no further delays.
For investors, Intel’s high-end dividend is a good incentive.
AT&T
By shedding AT&T’s media empire entirely, the telecom giant can focus on growing its wireless and fiber businesses. A strong economy is putting some pressure on the company’s bottom line, but it has no problem winning over customers.
AT&T added 708,000 net postpaid phone subscribers and 338,000 net fiber connections in the third quarter. While wireless revenue increased 5.6% year-over-year, fiber growth drove total broadband revenue up 6.1%.
The company It expects to generate $14 billion in free cash flow by 2022, a view that was downgraded earlier this year as customers delayed payments. That’s normal customer behavior in tough economic times, so it shouldn’t be anything to worry about. But how much money AT&T brings in will be temporarily reduced.
AT&T has bridged the gap after winning WarnerMedia, an important step toward bringing dividends down to sustainable levels following years of expensive media acquisitions. The company now pays a quarterly dividend of $0.2775, which is about a 6.1% dividend yield. Based on the current share count, the dividend will eat up about $8.5 billion next year.
AT&T’s results should be more predictable now that the company has divested its media assets, though a potential downturn next year could certainly hurt a bit. The good news is that wireless and home Internet are necessities for most people. Customers may delay updating their smartphones, which will reduce AT&T’s device revenue, but congestion shouldn’t be a major problem.
AT&T’s free cash flow guidance easily covers this year’s dividend payments, and free cash flow should increase in the coming years as investments in 5G and fiber continue to pay off and the company realizes the benefits of cost reductions. The company originally expected 2023 free cash flow to be around $20 billion, though that number may be a bit optimistic given the state of the economy. Still, there’s plenty of room to grow free cash flow over time.
Unlike Intel, AT&T investors shouldn’t expect a significant dividend increase anytime soon. AT&T is still working to pay off the debt it accrued through the media deal, and that effort may be a priority. But it is difficult to pass a dividend of more than 6 percent.
Timothy Green has held positions at AT&T and Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.
