Intel Corporation, the world’s largest chipmaker, has announced a two-thirds cut in its dividend, dropping it to 50 cents a year. The move comes as the company faces mounting pressure to fund its expensive turnaround plan amid concerns over its competitive position and a sinking market for PC sales that still drives the bulk of its chip sales.

The company had been under increasing pressure to maintain its generous dividend payout, which had reached about 5.6%, ranking it 14th on the S&P 500 and the second-highest on the Dow following Verizon. However, cutting the dividend was seen as a last resort for Intel. In fact, the company raised its dividend by 5% just a few weeks before a special meeting with analysts last February to outline the costs of its plan.

Despite its commitment to maintaining a competitive dividend, Intel’s once-flush chip-making business has been burning cash and making record capital expenditures, leading to the need to consider all options. The decision to cut the dividend was not unexpected given the pressures the company faces. Intel’s share price even ticked up as much as 2% on the news before slipping.

It is worth noting that Intel’s other form of returning cash to shareholders, stock buybacks, had shrunk to nothing by last year, despite being twice as high as its annual dividend as recently as 2020.

The dividend cut has diminished one of the few remaining draws to owning Intel shares in the midst of such a risky turnaround effort. The cut drops the yield to about 1.9% at Intel’s current stock price, barely in the top half of the S&P 500. As analyst Stacy Rasgon of Bernstein noted on Wednesday: “An investment in Intel is now purely a bet on their ability to execute over the long term (for which the current track record is less than ideal).”

Intel has also been one of the worst-performing chip stocks over the past two years, with more than half its market value gone just since that analyst meeting last year where it outlined its spending plans. The plan has taken the company into annual negative free cash flow territory for the first time since at least since 1990, which is as far back as data compiled by S&P Global Market Intelligence goes.

Investors holding on to Intel for the dividend should have known they were on shaky ground. As the company moves forward with its turnaround plan, it remains to be seen whether it will be able to regain its competitive position and deliver long-term value for shareholders. For now, the dividend cut is a necessary step towards ensuring the company’s financial stability in the face of mounting challenges.

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