Qualcomm: 5G Dividends

11/28/2019 5:00 am EST

Focus: TECHNOLOGY

Stephen Mauzy

Income-Investing Specialist, Wyatt Investment Research

Qualcomm (QCOM) is worth special consideration among our December dividend payers. The San Diego-based smartphone-tech company has seen its shares rise 52% this year, explains Steve Mauzy, editor of High Yield Wealth.

Qualcomm has settled most of its royalty wrangling with lead customer Apple (AAPL). Investors have responded to diminished uncertainty by bestowing a higher valuation on Qualcomm. 

With the Apple issues resolved, attention has shifted to the future. The future is 5G telecom technology. The next-generation 5G smartphones will elevate watching videos and playing games on mobile networks to Wi-Fi standards. Qualcomm will be a prominent beneficiary of the transition to 5G smartphones. The company controls 43% of the baseband processor market.

Qualcomm fired its first shot across the bow with its 8-series Snapdragon chip that powers high-end devices from Samsung, LG, Oppo, OnePlus, and Xiaomi. The company will broaden its 5G chipset portfolio next year by expanding into affordable offerings to power lower-priced smartphone.

Qualcomm management expects global smartphone makers to ship 450 million 5G handsets in 2021 and another 750 million in 2022. Management’s bullish predictions have been corroborated by outside sources. Strategy Analytics predicts 5G smartphone unit sales will exceed 1 billion by 2025

We expect Qualcomm revenue and earnings to trend higher starting in 2020. We expect cash to assume a similar trajectory. More cash that flows into Qualcomm’s coffers means more cash available to flow out to shareholders as dividends. 

Qualcomm is already an established dividend payer and grower. It began paying a regular quarterly dividend in 2003. The dividend has been increased at a 22% average annual rate since.

We’ll concede that 22% average annual increases are near-impossible to sustain over time. That said, given Qualcomm’s likely dominance in 5G chip technology, it should have the financial wherewithal to maintain double-digit average annual increases into the mid-2020s, if not beyond. 

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