2022 has been a tough year for investors. The S&P500 the market index is down more than 30% since the start of the year and the most growth-oriented Nasdaq Compound lost more than 30% over the same period. Within these broad market metrics, many stocks took even harder hits.
On the positive side, the negative market trend has created fantastic buying opportunities. This is especially true in the technology sector, which tends to exaggerate ongoing trends in the general stock market. But wait, there is more good news! Given the price-based math of dividends, falling stock prices also tend to drive up dividend yields.
Taken together, these two effects make me want to pound the table on investing in Intel (NASDAQ: INTC) and International Business Machinery (NYSE: IBM) at present. These premium companies have seen steep price declines in 2022, pushing their cash dividends to new heights of generosity.
Intel’s Turnaround Story: 5.7% Dividend Yield
Semiconductor giant Intel’s latest earnings report was admittedly disappointing. The company fell short of Wall Street estimates, both in terms of revenue and earnings. Management acknowledged that the results fell short of Intel’s expectations, in part due to execution issues. The stock has fallen 35% since that fateful report, well below the S&P 500’s 11% decline over the same period.
Today, Intel shares are trading at the lowest price-to-sell and price-to-earnings ratios seen since the early 1990s. Dividend yield stands at 5.6%, the highest in 30 years of Intel’s dividend history.
You might see these unusual metrics as red flags signaling Intel’s downfall. However, I see a tremendous opportunity to buy in and lock in those incredible dividend yields amid a unique turnaround story.
The CPU design cycle typically takes three to five years. Intel appointed a new CEO in 2021, who then revamped the entire management structure to his liking. CEO Pat Gelsinger is still grappling with his predecessor’s decisions and product developments, and real improvements to Intel’s long-term business plan won’t materialize until 2024. We’re at the bottom of that trough. troublesome, further aggravated by exceptional events. challenges for the US and global economies.
Intel’s business prospects are actually brighter than ever over the long term. Gelsinger is an engineer at heart, replacing a finance professional who had to take help from Intel in outrageous haste. It makes sense that former CEO Bob Swan made operational mistakes, and I’m fully confident that Gelsinger can right the ship – given enough time.
On top of all that, Intel has started making chips for other companies and is investing billions of dollars in extensive chip-building facilities. The slot looks healthier than ever, and Intel remains committed to returning a significant portion of that money to shareholders in the form of dividends. Investors should jump at the chance to take advantage of Intel’s massive dividend yield when the stock is cheap.
Focus on IBM’s artificial intelligence: 5.6% dividend yield
Big Blue’s high dividend yield isn’t a record for the company, but you’ll only find a handful of richer quarterly checks among S&P 500 tickers. And if you limit your search to S&P tech names 500, only Intel is now above IBM’s performance. Here we are looking at the elite of the tech dividend-paying elite.
The company began its transition from hardware to software and services ten years ago. Today, IBM is a giant in hybrid cloud services and artificial intelligence (AI) tools. The current platform was rebuilt around the acquisition of Red Hat for $34 billion in 2019.
IBM’s revenue rose 16% year over year in July’s second quarter report. Hybrid cloud sales are growing even faster, and more than 70% of IBM’s total sales now come from software and consulting. This century-old titan has transformed into a high-growth phenom with its finger right on the pulse of the IT market’s biggest growth opportunities.
Yet the share price has fallen 13% in 2022 as investors shift away from growth stocks in favor of ultra-safe havens. In my eyes, IBM delivers its high-octane growth opportunities from a stable financial platform. It’s the best of both worlds, appealing to both growth and value-oriented investors in equal measure.
These high-yielding surnames are on sale
These two companies take their annual dividend increases very seriously:
Shares of IBM and Intel have suffered significant discounts in 2022, mainly due to the challenges facing the economy as a whole. Price declines have given their stocks attractive dividend yields, and if you buy today, you can lock in those high yields for the long term. It’s a great way to build lasting wealth in the stock market.
10 stocks we prefer to Intel
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Anders Bylund holds positions at IBM and Intel. The Motley Fool holds positions and recommends Intel. The Motley Fool recommends the following options: January 2023 Long Calls at $57.50 on Intel, January 2025 Long Calls at $45 on Intel, January 2023 Short Calls at $57.50 on Intel, and January 2023 Short Calls at $57.50 on Intel and January 2025 sale at $45 on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.