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When you find a proven dividend grower with a high starting yield, it’s usually worth a closer look. Qualcomm Inc. (NASDAQ: QCOM) is worth a closer look.
The technology company began paying a dividend in 2003. The Qualcomm dividend has been increased every year since. The latest Qualcomm dividend increase, in May, was 10% and lifted the annual payout to $2.12 per share. The increase, in turn, puts Qualcomm’s current yield at 3.4% – higher than the current yields offered by Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Cisco System (NASDAQ: CSCO).
If you’re not a tech junkie, you’re likely unfamiliar with Qualcomm’s business. In short, it develops and supplies integrated circuits and systems based on CDMA and other technologies. These circuits and systems are sold and licensed to manufacturers that use them in wireless devices – smartphones, tablets, and laptops. Qualcomm supplies critical parts for Apple (NASDAQ: AAPL), Samsung (OTC: SSNLF), and other original equipment manufacturers.
Lots of Cash
Qualcomm’s business is a high-margin business, evinced by Qualcomm’s cash account. It sits at $17.1 billion, up from $12.3 billion four years earlier. Cash per share exceeds $11.60. The cash account continually grows despite money continually flowing out to reduce the outstanding share count by 14% over the same four years.
The remaining outstanding shares were recently given a boost. Last month, Qualcomm reported quarterly earnings that blew past analysts’ expectations and easily beat year-ago earnings. It posted EPS of $0.97 for the fiscal-year third quarter, a 33% increase over the $0.78 reported a year ago. Qualcomm shares spiked $4 on the report. The year-to-date gain was lifted to 23%.
China Market Blooms Again
Qualcomm shares trade near the 52-week high, but I see more room to run, because I see a lot going right for Qualcomm in the future. Recent events in China, Qualcomm’s largest market, point to renewed revenue and earnings growth.
In February 2015, Qualcomm reached a resolution with China’s National Development and Reform Commission regarding the NDRC’s investigation of Qualcomm under China’s Anti-Monopoly Law. The NDRC imposed a fine of approximately $975 million.
Shelling out nearly a billion dollars is painful, but the pain came with an anodyne. The Chinese government has permitted Qualcomm to charge royalties of 5% for 3G devices and 3.5% for 4G devices, in each case using a royalty base of 65% of the net selling price of the device. Qualcomm management said the company collected royalties from only 56% of their customers in China in 2015. They now expect that number to reach 75% this year.
Qualcomm also appears to have shored up its relationship with Samsung. Many investors were concerned because Samsung had developed its own processors to compete with Qualcomm’s. But in spite having a processor of its own, Samsung still chose Qualcomm’s Snapdragon processor for its latest mid-range Android handsets, the Galaxy C5 and C7. Samsung is the world’s top seller of smartphones.
Speaking of Snapdragon, Qualcomm released a new version of the processor for the wearables market – watches, fitness trackers, smart headsets, and wearable accessories. According to International Data Corp., the wearables market will generate double-digit growth through 2020, culminating in shipments of 237.1 million wearable devices in 2020.
Qualcomm Dividend Growth
Now that it appears Qualcomm has created room to run, EPS estimates have run higher. EPS should post at around $4.25 this year. Next year, $5 is the new go-to number. Five dollars per share is reasonable; it’s also relatively cheap. The forward P/E multiple is still below 12.5. The five-year average is closer to 16.
Yes, Qualcomm shares are up 23% year to date; they could be up another 23% over the 12 months. And if they’re not, you still have that high-yield $2.12 per-share Qualcomm dividend that grows at a double-digit rate year after year. (For more fast-growing yields, click here.)
Regular Dividend Checks Every Month
Imagine having a regular stream of dividend checks arrive in your mailbox every month all year long. And knowing precisely when you’ll be paid. Sounds incredible, but you can arrange this kind of security for yourself in just a few minutes.