Qualcomm, Inc. (NASDAQ:QCOM) shares pulled back about 15% in three months to about $55.50 per share. Thanks to the lower share price due to negative press (i.e. Apple Inc. (NASDAQ:AAPL) suing Qualcomm), Qualcomm now offers an attractive yield of 3.8%. That’s 90% higher than the market’s 2% yield.
Dividend growth and share buybacks
Qualcomm has increased its dividend for 14 consecutive years. It compounded its dividend at an annual rate of 16.5% over the last 10 years. The company last hiked its dividend by 10.4% in Q2 2016.
Over time Qualcomm has been morphing into a more mature dividend company. Up to fiscal 2014, its average annual dividend yield was 2.1% or smaller and its payout ratio was 30% or lower. Its annual payout of $2.12 per share is supported by a payout ratio of about 48%.
Since the end of fiscal 2014, Qualcomm has reduced its share count by almost 13%. It wasn’t a bad use of capital as shares were either fairly valued or undervalued during most of that period.
Qualcomm is attractively valued
At $54, Qualcomm trades at a P/E of just under 12. If it reverts to the mean towards a P/E of 15, Qualcomm could trade at about $70 again. If so, that’d imply an upside potential of nearly 30%.
The analyst consensus (across 35 analysts) expects the company to grow its earnings per share (“EPS”) by 9-10.5% per year for the next three to five years. If that materializes, a multiple of under 12 is a good value to pick up some Qualcomm shares.
The NXP Semiconductors acquisition
Qualcomm is working on acquiring NXP Semiconductors NV (NASDAQ:NXPI). NXP complements Qualcomm’s existing business and will help boost growth.
Qualcomm is a solid S&P credit rating of A+ that’s attractively priced and offers an attractive yield of 3.8%. If the NXP acquisition is successful, it will be a great addition to Qualcomm’s business.
This article is mainly an excerpt from my Seeking Alpha article. Unfortunately, the number of words I can include is limited. For the full article that can be accessed for free, visit: Why Is Qualcomm An Attractive Buy?
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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