Tech Stock. Income Kicker. Not Apple.
05/02/2012 9:45 am EST
While everyone giggles with glee now that Apple is throwing off a dividend, the company below has been doing the same thing for almost a decade, is a strong value play, and is well-positioned to grow for decades to come, writes Charles Carlson of DRIP Investor.
While Apple’s (AAPL) announcement that it is initiating a dividend has garnered a lot of attention, one tech stock that has been ahead of the curve in terms of giving its shareholders dividends is Qualcomm (QCOM).
The company has been paying a quarterly dividend since 2003. Reflecting strong operating performance, the company recently boosted its dividend 16% to a quarterly rate of 25 cents per share.
Given the company’s strong growth potential—per-share profits should show double-digit growth this year and next—and healthy financial position—cash and investments totaled nearly $22 billion at the end of December, with no long-term debt on the books—dividend hikes should continue at a brisk pace. Qualcomm has its tentacles in nearly every rapid growth area in the technology sector, which makes these shares an attractive play for the next 12 months.
And the firm’s technological prowess should assure it remains a relevant player for the long term. The stock is up more than 22% this year, but I believe there is plenty more upside for these shares. Buy Qualcomm now.
Qualcomm is the world’s largest fabless semiconductor producer, as well as the largest provider of wireless chipset and software technology. Its technology powers the majority of all 3G devices commercially available today. Qualcomm technology can be found in a host of mobile devices, including Apple’s iPhone 4S and new 4G iPad.
Qualcomm’s revenue stream is supported by an annuity-like licensing business. Overseas business, especially in emerging markets, should continue to expand at a rapid rate as smartphones gain greater penetration.
A big reason Qualcomm has been able to stay on the cutting edge of fast-moving technology markets is its devotion to research and development. The firm spends some 20% of revenue on R&D. Supporting that hefty R&D spending is a pristine balance sheet. The company has about $13 per share in cash and investments and virtually no debt.
That financial firepower is one reason the firm has been able to more than double its quarterly dividend since 2007. Strong finances have also permitted stock buybacks. The firm recently announced a new $4 billon buyback plan.
Qualcomm is not bargain basement-priced. The stock trades at 18 times the consensus 2012 earnings estimate of $3.75 per share. However, given the company’s growth opportunities, I view that as a reasonable multiple to pay for these shares.
Qualcomm has beaten the consensus earnings estimate in each of the last four quarters, so that $3.75 figure may prove conservative. Investors would be wise to at least nibble on Qualcomm at current prices and buy more aggressively on price breaks below $60.
Please note that Qualcomm offers a direct-purchase plan whereby any investor may buy the first share and every share of stock directly from the company. Minimum initial investment is $500.