Novice Investing - Intelligent Buyback

Date: Friday 05th 2008f September 2008 05:43:36 PM

Intelligent Buyback - 11/10/2005

By: Novice Investing Staff

Intel Corp. (INTC) wowed investors with $ 25 Billion stock buy back on Thursday November 10th 2005. This is on top of $ 15 Billion worth of stock that it has repurchased since the beginning of 2004.

With a market capitalization of a 'mere' $ 151 Billion, Intel has a chance of reducing its share count by more than 16%. But of course, Intel has issued a lot of stock options program that will dilute existing shareholders. We are not sure how this might affect the final share count. At the very least, the $ 25 Billion stock buy back can reduce share count by at least 5%.

In addition, the company raised its dividend to 40 cents per share annually. The yield is a meager 1.6% but at least management is giving something back to the shareholders.

With its huge buy back program, will Intel has enough cash to do that? The latest balance sheet shows that Intel has $ 13.4 Billion of net cash. It is expected to earn around $ 7 Billion this year and the next. If the buyback program last for another 2 years, we believe that Intel has more than enough liquidity to cover that.

From the look of it, Intel seems to be retaining $ 0 of its earnings and distribute it right to shareholders. For the past two years, it has been buying back shares at a rate of $ 7.5 Billion a year, which is roughly what it earned for a particular year. This is a wise move as long as the share price is not overpriced. Intel also needs to keep its profit level constant, or else, it won't have enough money to continue the stock buyback.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Intel Corp. (INTC) or any other securities.

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