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Qualcomm: Keeping Up with the Apples
03/07/2013 4:00 am EST
A dividend hike shows the big tech is thinking about shareholders, but with the company playing catch-up to the higher yields offered by some peers, the stock may not move as much as one would think, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
Recently, Qualcomm (QCOM) announced that it would increase its dividend by 40%—to 35 cents a share from 25 cents—and start a new $5 billion share-repurchase program. (That program will replace an older $4 billion plan that still had $2.5 billion in purchasing power left.)
I see this as, first, a move to keep up with the Apples of the world by hiking the yield on the shares—about 2% after today’s move—to a roughly level roughly comparable to the 2.65% yields on Apple (AAPL) and Cisco Systems (CSCO). Certainly, Qualcomm has the cash flow and the cash balances to keep up.
Second, the dividend increase is a strong vote of confidence by the company’s board that Qualcomm will be able to keep up the pace of recent quarters. Unlike a share buyback, which can be announced and then never completely executed, a dividend is a major commitment of company cash, and company boards know that the company’s share price will get pummeled if they have to cut the payout.
As of December 30, Qualcomm had cash and cash equivalents of $10.1 billion onshore and $18 billion offshore. The company is a member of my Jubak’s Picks portfolio.
On January 31, I raised my 12-month target price on the shares to $82 from $77. The dividend and the buyback are transfers of cash from the company to shareholders; while an increase to a 2% yield is appreciated, I don’t see the move as a reason to raise my target price at this point.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Qualcomm at the end of September. For a full list of the fund’s holdings as of the end of September, see the fund’s portfolio here.
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