>> If Intel cuts its dividend the stock will crater

Not necessarily. It really makes zero difference to the valuation of a company. Investors really punish companies that can barely cover their dividend (or worse have to borrow). If earnings are bad and revenues are not growing, the dividend is just a hokey shell game that works for about 5 minutes.

Depends on the investor. There is an entire class of investor that is focused on stocks that reliably deliver a dividend. I wasn't aware that Intel had joined old-economy companies like oil, but I also don't fully understand the dividend investor mindset, as I can't figure out a tax situation that makes it appealing...

Yes, of course. Many investors want low risk, inflation proof investments with good dividend yields. However, Intel seems like a poor choice for such investors regardless if they temporarily prop up the dividend via cuts that will inevitably cause harm in the future. After all, what are the chances that Intel will become a higher performing organization as a result of this?

REITs and telcos are a much better choice for this investor class.

> also don't fully understand the dividend investor mindset

Suppose you have ~5 million invested for retirement. The dividend you could get from this is ~100k-150k per year.

That is a very livable salary if you want to retire early (45? 50?) and focus on your family and hobbies.

Does this make sense yet? It's essentially a conservative way to lead your live if you are not necessarily married to your profession.

No, it absolutely makes no sense to me. Dividends are taxed as income, capital gains is taxed at different rates.

In the USA, dividends may be taxed at the capital gains rate depending on the company (Intel qualifies) and how long the position has been open.

https://www.investopedia.com/terms/q/qualifieddividend.asp

Aha, thank you, this is exactly the reason.

>Dividends are taxed as income.

Exactly, you either supplement your income with it or retire early and replace your income with it.

There are whole generations of people doing this.

Dividends are forced liquidation events.

If you want dividends simply sell a portion of your holdings every quarter.

When one focuses solely on dividend yield and not total return, which includes capital appreciation, it's a sign they don't really what's going on.

Where do you think the dividends are coming from? Straight from the company's market cap.

By preferring companies that consistently pay high dividend yields you're selecting for larger and established companies that have no better way to reinvest the money.

This may result in a fine choice if you want income, but the important distinction is not because of their dividend yield... it's because of their positions as market leaders.

Thus you may do just as well by selecting those large market leaders that pay no dividends but are reinvesting heavily.

>Straight from the company's market cap.

That's not how it works for a publicly traded company in a free market. Historically announcing a dividend has usually caused more people to be interested in buying, which increases your market cap correspondingly.

Probably works out fine for investors who have retired from their professional career.

> I also don't fully understand the dividend investor mindset

That interesting, because I don't understand the mindset of investors who are just trading stocks like baseball cards. They don't seem to care what the company actually produce, just that the numbers tell them that the stock can sell for a little more next year.

Divided makes a lot of sense, because it keeps yielding money, for the same initial investment. So it's just extra money, but it's money you can actually spend. Sure you pay taxes on the divided, but you still hold the stock and can sell that at a late time.

Honestly I feel that it problems are the companies that never pay divided. The investors then depend on buy-backs or trading to recover their investment. This has created investors that do not care about the companies they invest in. The companies can go broke tomorrow and that's fine, as long as they can sell their stocks before it happens.

Studies have shown (take this with a grain of salt because I heard this from a podcast), that dividend stocks and non-dividend stocks have roughly equal returns in the end, with dividend stocks faring slightly worse.

This is because dividend stocks tend to appreciate less.

So taking $X in dividends every six months ends up being the same as selling $X of your portfolio every six months in the end.

Except that there are often different tax rates between capital gains and dividends. Even if there weren't tax rate differences, reinvesting dividends effectively compounds the tax rate annually, whereas the capital gains tax is a simple rate the year you realize the gain.

Though, in a tax-free retirement account, it's moot.

It is really just a matter of what a company does with its earnings. The options are: 1) invest in the business (including acquisitions, etc), 2) stockpile cash and 3) pay dividends.

A company cannot do 2) for too long at once or it might face legal trouble.

Taxes aren't ideal, but a brief philosophical defense of the dividend investor mindset:

Before the 1920s stock bubble, buying stock in a company was buying a portion of the company's future free cash flow in return for investment. The value of a stock was fundamentally coupled to running a profitable business. The dividend was the point.

The 1920s saw a major shift of valuation philosophy to a speculative mode, focusing on the price of a stock. Now, occasional crazy things happen where the price of a stock can shift dramatically even without change in the dynamics of the underlying business. Prices should reflect future earnings... but they often don't. Portfolio construction and indexing are protections against this, but the underlying philosophy goes even further in treating stock prices as random walks with underlying market beta, not as real businesses. Indexing punts out of real valuation.

I won't defend "dividend investing" with weird dividend manipulation, but I really do like having an alternative valuation model: the value of an investment is not the result of an increase in price since my purchase of that asset, but instead my recurring cash flow yield from owning that asset. I certainly have money in index funds and speculative assets, but I get a lot from a yield based valuation philosophy instead of price based valuation:

- Prices are heavily manipulated and favor insiders and funds, not individual investors.

- It feels more connected with reality.

- The growth of passive investments probably poses systemic risks (Mike Green's talks and interviews are great) and I don't want to piss in the pool too much. Yield based valuation makes me more comfortable making active investments.

- Easier to value different asset classes against each other, for example buying a house to rent out vs stocks. The valuation is my dollar yield per time per dollar invested.

- Boomers retiring and pulling money out of the system plus decay of globalization will put heavy deflationary forces on markets in the coming years. I don't feel like a price based approach to valuation provides clear guidance on how to navigate investments other than "be smart". A yield based approach lets me walk away with a return even if stocks stay flat or go down.

Pretty much all of the above comes from the book Getting Back to Business by Daniel Peris. Bit dry and dense, but very thought provoking.

> Not necessarily.

Have you considered the structural implications of INTC float held by dividend ETFs alone[1], and how certain fund managers would be compelled to take action if all of a sudden Intel just stopped distributing a dividend? E.g. compare INTC holdings of Vanguard VYM[2] v. VanEck SMH[3] for about 5 minutes.

> It really makes zero difference to the valuation of a company.

Are you sure[4]? This is a bold, unsupported assertion without a single cite, as if to imply that valuation isn't a subjective craft practiced by people from diverse walks of life.

[1] https://www.etf.com/stock/INTC

[2] https://investor.vanguard.com/investment-products/etfs/profi...

[3] https://www.vaneck.com/us/en/investments/semiconductor-etf-s...

[4] https://www.cfainstitute.org/en/membership/professional-deve...

> executive compensation is stock-based

If they're cutting executive salaries by the largest amount it sounds good on paper but doesn't really do anything because their pay is, as you said, stock based.

So, unsurprisingly, very skeezy unless they change the largest factor in their pay.

Intel is down almost 50% YoY so the execs have already seen a much larger pay cut.

Not that I have a whole lot of sympathy for someone who now makes only $100mm/year, but surely that's variable compensation working as it should.

Why is that, aren’t buy backs better for investors anyway?

One reason I imagine is them being excluded from dividend etfs which would mean an outflow

I can spend a divided. Especially if I have to take a mandatory distribution. You have to sell (at the right time) to get profit from a buyback

You are forced to pay tax when you get a dividend. Buybacks allow you to sell over time and achieve the same thing but with preferential tax treatment in most jurisdictions.

Or more importantly not sell at all and not be forced to pay tax when you are just going to re-invest the dividend.

FWIW when I worked at Intel their 401k match was also in Intel Stock so there is that. (I do not know if they still do that) And yes, when I was there in '84 they were doing pay cuts to keep layoffs to a minimum.

401k match at Intel is just normal $ through Fidelity now

Bummer, the "Free$tock" program (as it was called when I was there) was a good deal.

>If Intel cuts its dividend the stock will crater.

Wait till you see what will happen to the stock when talent leaves the company (whatever it has left, anyway) after such pay cuts...

This. I've had one pay cut in my career, and it immediately made me just up and leave. I don't know why one would tolerate such a thing, unless there was significant up-side still on the table.

Upside might be not having to search for a job in current job market with layoffs happening left and right.

There are still plenty of opportunities out there. Layoffs are a social contagion that do very little, if anything, for a company’s financial health. This is all about the trend and trying to “discipline” labor. But it won’t work, especially this time because the US doesn’t have decent childcare (many mother won’t return to the workforce for a year or more) and has blocked millions of immigrants who would normally have entered the country the past several years.

That wouldn't be a problem for the more talented players - the ones you most want to keep

That wouldn’t be a problem for engineers who are good at networking or the interview song and dance, but plenty of talented engineers aren’t particularly good at those things.

The company will lose some talent, sure, but let’s not pretend this isn’t a strategic time for a layoff or pay cut.

Depends on the market. If everyone gets a paycut and Powell strikes the interest rates you' may have no other alternative.

Apple, Google, Nvidia & gang will always be happy to snap up a few promising/experienced engineers.

"a few"

I have heard about companies doing this in times of economic downturns to prevent layoffs. If that was the cause and it was communicated as such and temporary I'd be willing.

Example: https://www.independent.co.uk/news/business/news/toyota-staf...

In Germany this is known as "Kurzarbeit" (literal translation: short work). The company reduces the work hours of employees and the pay gets cut proportionally. The cut hours will be paid by the state at a rate of 60% (67% for workers with children, the rate is the same as unemployment).

So if a worker's hours get cut by 50%, they still get paid 80-83.5% of their wage. The company can choose to get the employees' pay back to 100% if they pay the difference, which sometimes happens if the hours are cut because there is not enough work and not because the company is in financial distress.

This helped quite a lot of companies to stay in business during COVID.

That's not the same. This one is a pay cut while maintaining the same hours.

Kurzarbeit is specifically for the industry ("Fertigung") so that the large production sites can survive when they're not getting enough orders to put everyone to work.

I admit that it's been heavily misused during Corona though, as every large corporation wanted to legally steal a little money from the state.

Not sure that I'm right, but I have the impression that for companies that are strongly driven by "shareholder vale" (like Intel as it appears), if before the pay cut it is thought that cutting jobs would give a net benefit (again in terms of shareholder value only), shortly after the pay cut they will think so again/still think so, even if the pay cut was justified by being able to avoid layoffs in this way.

So the realness of a talent defines by pay recieved! So upper management should be really talented individuals?

What is Intel doing here?

Investors already know this is deception and the market will value the company accordingly.

Intel should face the music and pay the price. Suspend the dividend entirely. (AMD last paid a dividend back in 1995!)

Growth stocks shouldn't be dividend stocks. That signals they have nowhere else to deploy the capital and are returning profits to investors. A buyback would be a better way to return cash to investors.

Intel's 5%+ dividend is insane anyway. That percentage yield on a non-REIT, non-PTP, non-cyclical (energy, etc.) business is very unhealthy and points to how anemic the stock is.

5% would be insane if inflation weren't 7%. However, cutting salaries to keep the dividend whole is insane.

In 2021 Pat Gelsinger made $179 million dollars[1]. But his salary was $1.1 million. So him taking a 25% cut in his salary is pretty much nothing.

[1] https://www.crn.com/news/components-peripherals/intel-ceo-pa...

This common assertion is false. See my earlier comment here:

https://news.ycombinator.com/item?id=34584450

Your comment only says that it was mostly in RSU, and since the stock had been going down it will likely be worth 1/3 by the time it vests. Even so, 25% of 1.1m is pretty much negligible, certainly compared with the 5% normal employees get cut

I agree a 25% cut for him is nothing. I was pointing out the falsehood of him making $179M. He made about $10M in 2021 and will likely not see most of the remaining amount as he will not hit the share price in time.

I misunderstood the part of the RSU's: I thought you meant that by the time they vest they will be worth considerably less than $179M, because the stock price has gone down. However if I understood you correctly now, these will be worth 0 if the stock price doesn't hit a certain value in time

Yes - he simply won't get those stocks.

Read the 2022 Proxy statement starting from around P 66 for all the gory details. I think my estimate of $10M was probably high.

What does surplus even mean with respect to wages? You could always pay your employees more! So what you mean is surplus is when you pay the market rate wages which in turn suggests the minimum amount of money the company should pay to ensure it gets the workers it needs.

If they cut the salaries and still enough people stay, then the money they saved still is surplus by that definition.

“Gets the workers it needs” Clearly it doesn’t, since Intel couldn’t even save itself during a chip shortage when prices were sky high. They’re getting smoked by AMD and TSMC, in terminal decline much like the mismanaged Motorola of old. It certainly doesn’t have the leadership it needed, so if anyone should have their pay cut, it’s the fat cats at the top who financialized the company a la GE and ran it into the ground.

Sounds like the mistakes in those regard were bad strategic decisions not inability to attract talent.

They're related problems, but yes, I would lay most of the blame at the VP level and above.

This is why dividends are so bad. They become an obligation and companies get locked into paying them.

Dividents are political, as well as stuff like who owns the company and executive policy and rewards and so on. We just tend to not talk about it a lot, or even see it as a political problem, even though these things underlie a huge part of our society

> Since executive compensation is stock-based, tied to the stock performance, or both, there's an obvious incentive to keep the dividend going.

The wealthy getting wealthier on the backs of the working class. In this case, literally TAKING from the working class to maintain the wealth machine.