Intel Corporation Stock Down, But Short Interest Hits Three-Year Low

Intel shares are down this year so far, owing to a slowdown in the PC market and a grim outlook from the chip maker. Despite an overall gloomy environment, negative sentiment on Intel has “subsided quite a bit recently,” notes Bill Maurer in an article posted on Seeking Alpha.

Intel Corporation Stock Down, But Short Interest Hits Three-Year Low

Bearish sentiment declining for Intel

The author notes that short interest for the chip maker is currently at a three-year low and is under 109 million shares, which is the lowest since May 2012. Maurer cites a few factors he believes are responsible for a decline in the short interest.

Intel raised its dividend for the year, and the annual yield presently is at around 3%, owing to a recent pullback in the share price. Also the chip maker has shown more intent lately towards buybacks. Therefore, the author notes that a strong capital return plan and declining expectations “can easily scare away some of the shorts.” Intel shares are currently trading around $5 below their 52-week high, which Maurer believes “just doesn’t seem to be as much of a risk/reward basis on the short side.”

With a slowdown in the PC market and lower revenue guidance from Intel, the author believes the chip maker’s stock is currently in line with market expectations. A decent capital return plan has certainly helped push down Intel’s short interest to a three-year low, reflecting a declining bearish sentiment.

Strong cash flow supports capital return plan

Intel is a well-known dividend stock, and its nearly 3% dividend yield is among the highest in the Dow Jones Industrial Average. What makes Intel’s yield more special is the fact that it belongs to the technology sector, which historically has not been a good source of yield. Over the past five years, the chip maker has increased its dividend by 8%.

Owing to a low capital expenditure requirement, Intel generates strong cash flow, which is one of the primary reasons for the rapid dividend growth. With such cash flow, Intel’s balance sheet is starting to swell with cash, and at the end of the last quarter, the chip maker’s cash and short-term investments stood at $6.1 billion, while it had another $6.5 billion in long-term marketable securities. In addition, the company carries a little debt.