Anybody read or care to comment on this seeking Alpha article,the author claims that INTC's dividend is very sustainable but basicly the share buy back has been a waste of time. Not really sure if I completely agree with this conclusion.
I think the basic premise of the article is that the buyback increases the debt of the company. While it does in a strict sense, the concept that is missed is that because of Intels superior credit rating, the borrowing is essentially free. If you reduce the share count you reduce the amount of dividends you are paying out also, so I don't know what INTC borrows money at but if it is less then the 4 and change percent that it pays in dividends per year, then it is cost free money. I am pretty sure INTC can borrow money at less then 4 percent. Strategically, it makes a lot more since to borrow the money in easy credit times and preserve the cash for other purposes. The authors logic is misplaced.
I agree, I read the article. I try to hear things out objectively. However - it seems the author misses the point of the buyback at interests rates lower than the dividend yield. Also - when he started talking about buying ARMH - I then realized he was really off in the weeds. I agree with Alexander. The UK and/or US would never allow it.
I know their accounting practices have been in place since day one & they are still in business,I think the author is just playing devils advocate,i tend to agree though that INTC's cash horde would be substantially higher without the buy back.
One thing that very few people take into consideration is where the cash on Intel balance sheets is deposited. There will substantial taxes on repatriated profits. Borrowing defers the taxes on those funds but allows Intel to take advantage of having the cash.
The 2011 $5b and 2012 $6b were both issued at rates below the dividend yield. Intel margined the company below 3% average to buy shares that yielded 4+%. Intel arbitraged low debt financing costs to retire shares as you pointed out.
Intel debt did grow at an alarming rate of 538% since 2010, from $2.1b to $13.4b with $11b of that retiring shares. The spread on this $11b dividend and borrowing rates will pay off the loans. 8-)
Intel debt is going to grow another $2.6b in 2013 for a rate of 662% over 4 years of which $11b is still the borrowing to buy shares. The $11b debt is less of a load than the dividend on the shares.
Anyone who thinks that the UK or the US DOJ would allow Intel to buy ARM is operating outside of reality. Corning? Dell? Those are his "better use" ideas?