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Semiconductor stocks are more attractive than ever as the companies boost their dividends, and investors should buy Advanced Micro Devices Inc. over Intel Corp. (INTC), according to Williams Financial Group Inc.’s Cody Acree.
“Most of the chip companies let the manufacturing burden go to the Taiwanese or to other companies, so they’ve become design houses with sales tools and they have very little fixed costs,” Acree, a Dallas-based analyst at Williams, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene. “They’re big cash generators and they’re deploying that back into big dividends.”
The Standard & Poor’s 500 Semiconductors & Semiconductor Equipment Index jumped 13 percent this year through yesterday, the sixth-best increase out of 24 groups in the S&P 500. The chipmaker gauge has returned 4.5 percentage points more than the broader measure including dividends. The semiconductor group’s current dividend yield is 2.13 percent, up from 1.1 percent in October 2007.
Acree said the lower price-earnings multiple (AMD) of AMD (AMD), based in Sunnyvale, California, makes it more attractive than Intel, which trades at 11.5 times profit in the past year. AMD is 27 percent cheaper at 8.4 times earnings. Intel, the world’s largest chipmaker, reached its highest level in seven years this month, while AMD, the second-largest, is the best-performing stock in the semiconductor gauge this year.
Acree has a hold rating on Santa Clara, California-based Intel and considers AMD a buy. AMD doesn’t pay a dividend, while Intel has declared 21 cent per-share dividends for the last four quarters.
Intel is “fairly range-bound,” Acree said. “AMD is gaining share in the space and to some extent that will be at Intel’s giving.”
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