HP Inc. (HPQ)

The scorecard: 92

• Pays: HP and its predecessor have paid a dividend for about sixty years without a cut. 20/20
• Raises: nine straight annual increases since HP Inc. was split off from Hewlett Packard Enterprise in 2015. The tenth is due next month. 12/20
• Safe: the $1.20 dividend is about 45% of trailing earnings, and under 30% of free cash flow. 20/20
• Undervalued: today's 3.98% yield is about 15% above HP's own five-year average of 3.45%. Our fill at $30.15 cleared the line for a 20 by a few cents; at Friday's close it would have been a 16. 20/20
• Yield that matters: 3.98%, second only to Realty Income and Comcast in the portfolio. 20/20

A 92, our sixth, and the first one where the weak box is the raise streak rather than the yield or the payout.

Why the streak is nine and not more

Hewlett-Packard has paid dividends since the 1960s, so why does the Raises box only credit nine years? Because in November 2015 the company split in two. HP Inc. kept the PCs and printers and about 60% of the old dividend; the rest went with the new Hewlett Packard Enterprise shares. A shareholder who kept both got roughly the same income. But our rule counts the dividend per share of the stock we actually own, and that number dropped 26% in 2016. We don't count through a break like that, so the streak starts in 2016. Nine years, every one of them higher, and a tenth raise expected in November.

The thesis, and what the scorecard thinks of it

We will be honest about why HP was on the list at all. The idea was ours before the numbers were: the next wave of AI may run partly on the device in front of you rather than entirely in someone else's data center. "AI PCs," machines with chips built to run models locally, were 30% of HP's mix last year, are heading for 50% this year, and management expects 60 to 70% next year. Commercial PC revenue grew 20% last quarter. If businesses decide they want their models running on their own hardware, HP sells the hardware.

The five boxes don't score any of that. They score the dividend, and the dividend scored a 92 on its own. The thesis is the reason we looked at this stock rather than another 92. It is not the reason it passed.

The honest part

The analysts are split, and the skeptics have a serious argument. Morningstar rates HP three stars with a fair value of $28, which means they think we paid about 8% more than the business is worth, and they give it no moat. Their bear case answers our thesis directly: even if AI PCs take off, the profits will mostly flow to the companies making the chips and the software, while the companies assembling the boxes stay low-margin. That is exactly what happened in the last three decades of PCs, and it may happen again. CFRA has it at two stars. Argus says Buy with a $34 target. Our brokerage upgraded it from a D to a C on Friday, which is faint praise.

Other things to know. HP's printing business is in slow, permanent decline. Memory chips have gotten expensive, and HP is raising prices to cover it, which works until it doesn't. Shareholders' equity on the balance sheet is negative, the result of years of buybacks exceeding earnings, which is common among mature companies but worth knowing. And the chief executive left in February to run PayPal; an interim CEO is in charge while they search.

What we are holding against all that: a dividend that takes 45 cents of every dollar earned, that was raised through the 2023 PC slump when sales fell 15%, and that yields almost 4% at a price below its own norm. If the AI-PC story comes true, that is a bonus. If it doesn't, we own a well-covered 4% yield from a company that has paid one since before most of us were born.

Three dividends, two surprises

Three dividends landed since last Monday. T. Rowe Price's we recorded two weeks ago. This week Realty Income paid $0.43 and Medtronic paid $0.91.

The Realty Income figure needs explaining, because we told you to expect about $0.93. We bought our second lot of Realty Income on October 12, but the payment that arrived on October 15 belonged to anyone who held shares before October 1. Our new shares weren't on the list yet. The dividend calendar on our front page had used today's share count instead of the share count that mattered, so it overstated the payment. It now uses the right one. Next month's Realty Income payment, on November 13, will be the first on the full position.

Both payments, $1.34 together, went into this morning's buy. Lifetime dividends collected now stand at $9.67.

The numbers on this week's buy

• Invested: $101.34, the usual $100 plus $1.34 of pooled dividends
• Bought: 3.3613 shares at $30.15
• New annual dividend income added: about $4.03 per year
• The portfolio after 19 weeks: $1,900.00 contributed, $9.67 reinvested, worth about $1,881.88, throwing off about $69.49 a year, roughly $5.79 a month
• Sixteen holdings across eleven sectors. For the first time, there is no sector we don't own.

The portfolio is worth about 1.5% less than we have put in, up from a 5.4% deficit last week as prices recovered broadly. The income line went from $65.46 to $69.49 a year.

The running totals are on the portfolio page, and the slider lets you drag through time to watch the income grow.

That's week nineteen. The last empty sector filled, a 92 from a stock half the analysts dislike, and a calendar mistake owned up to. See you next Monday for pick number twenty.

This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.