HP Inc (HPQ  ) is not a growth stock; it's not exciting to own, but it is a winner if you are an income investor. The business is down, and the outlook isn't all that rosy, but the business is solid, FCF is robust, and the dividend is as reliable as they come. The dividend is worth about 3.35%, with shares trading near $30, which is a decent return compared to the S&P 500 (SPY  ), and it offers a deep value compared to the broad market.

Trading at 9X its earnings is half as cheap as the average S&P 500 name, paying more than double the yield. Add favorable guidance compared to some that have been less than ideal, and the odds are high this stock could outperform in the back half of the year.

HP Has Mixed Quarter, Reaffirms Guidance

HP had a mixed quarter and is feeling the pain of diminished consumer and business demand, but the report also has good news. The revenue of $12.91 is down 21.7% compared to last year and more than expected, but it is offset by margin strength. On a segment basis, the core Personal Systems unit is down 29% compared to last year and offset by a smaller 5% decline in the Printing segment.

The company's margins contracted, which was expected, but the good news is that the contraction was less than forecast. The company reported an adjusted operating margin of 8.7%, down a tenth compared to last year but 60 bps better than expected. This led to a solid bottom line figure, $0.80, down YOY but 1000 bps ahead of the Marketbeat.com consensus.

The guidance is the news that is helping to support the market in early trading. The company did not update its revenue figures but reaffirmed its earnings and cash flow outlook. The adjusted EPS is expected to align with the consensus figure in Q2 and above it for the year, with FY free cash flow running in a range of $3 to $3.5 billion. That's excellent news for income investors and assures the company can pay and increase the distribution this year.

Net cash from operating in Q2 came in at $0.6 billion with $0.5 billion in FCF. That puts the dividend at 60% of the FCF, which is safe and sustainable. However, the FCF payout ratio improves to roughly 35% for the year, which is safe and sustainable and leaves ample room for aggressive increases should the company decide to do so. Until then, investors must be satisfied with the 13% CAGR the stock has been running. The only red flag that is popping up is a YOY reduction in cash on the balance sheet but a reduction in current liabilities and long-term debt offsets that.

The Analysts Support HP Inc.

The analysts' activity in HP Inc. is light this year, but they support the market. The 4 most recent updates include 2 that came out before the Q2 release and 2 after. The 2 pre-release commentaries were issued in April and May and include 2 upgrades to Buy equivalents from Neutral equivalents. The 2 that came out after the Q2 release include price target increases with the stock trading near the broader consensus of $29.80. That figure assumes fair value at current levels and is trending sideways, enough to keep the market moving at least.

The price action fell following the Q2 report, but the bottom is already in. The market shows firm support at the $29 level, consistent with sideways, rangebound trading. This level may be tested again over the next few weeks or months but should provide a floor for the action assuming no deterioration in the outlook.

The article "HP Is A Winner For Income Investors " first appeared on MarketBeat.