Sunday, July 26, 2015

Recent Buy: Qualcomm Inc



Jul 16, 2015: Bought 38 shares of QCOM at $64.43 per share.

Founded in July 1985 and headquartered in San Diego, California, Qualcomm In (NASDAQ:QCOM) designs and manufactures innovative digital wireless communications products and services based on the company's CDMA digital technology. The company also licenses many of its 5,700+ patents and intellectual property to wireless equipment manufacturers.

QCOM is a Dividend Contender with a track record of 13 consecutive years of dividend increases. It pays quarterly dividends of 48¢ per share in the months of March, June, September and December.

The company is the Information Technology sector winner and 4th ranked stock in the July 2015 edition of my 10 Dividend Growth Stocks article series. My buy price of $64.43 results in an initial yield on cost (YoC) of 2.98%.

QCOM is an existing holding. I first bought shares of QCOM on 17 April 2015, picking up 37 shares at $68.01 per share and at a YoC of 2.82%. With this buy, I'm averaging down to a per share price of $66.20. The following chart shows these entry points:

 Source: Scottrade

QCOM's stock price has been under lots of pressure this past year. In fact, the stock has underperformed the S&P 500 by more than 25%.

A falling stock price causes yield to rise. QCOM now yields more than 3%. Of course, QCOM's healthy dividend growth rate contributes to the rising yield too.


Here are QCOM's dividend growth rates over several different periods, according to gurufocus:


QCOM's dividend growth rate is impressive, especially when considered in light of the company's low payout ratio. Except for a significant spike in 2009, the payout ratio is below 35%:


Below is a historical graph of QCOM, courtesy of F.A.S.T. Graphs™, that plots the share price (black line) relative to adjusted earnings (dark green area) and valuation growth rate (orange line). If the black line falls within the dark green area, the stock is trading at or below fair value, which is clearly the case for QCOM:


Analysis of QCOM


My fair value estimate of QCOM is $71.56, so I bought shares at a discount to fair value of 11%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.


QCOM passes the following of my selection criteria:
  • Dividend yield exceeds 2.75% (2.98%)
  • Chowder rule: Dividend yield plus 5-year CAGR exceeds 8% (22.27%)
  • Debt to equity ratio is below 50% (0.03%)
  • Price to earnings ratio (P/E) is less than 20 (TTM 14.66x and Forward 12.15x)
  • 5-year CAGR is at least 10% (19.17%)
  • A streak of at least 5 years of dividend increases (13 years)
  • Reasonable confidence in continued dividend growth (Yes)
  • Price discount is at least 5% of fair value estimate (11.07%)
QCOM fails the following of my selection criteria:
  • Earnings per share (EPS) percentage payout is less than 40% (45.50%)
  • P/E to annual EPS growth (PEG) ratio is less than 2 (2.28)
Based on these statistics, QOM earns 5 out of a possible 7 stars: (*****--)


Other ratings for QCOM


 Zacks Rank 4-Sell (C•C•D)†
 S&P Capital IQ's Stock Report (****-) Buy
 Thomson Reuters StockReport+  (6/10) Neutral 
 MorningStar Rating (****-)
 TheStreet Ratings Rating Buy [B-]
 The Motley Fool's CAPS Rating (****-)
        †(Growth•Value•Momentum)


Concluding Remarks


QCOM was ranked 4th in my July dashboard of dividend growth stocks. Since then, QCOM reported disappointing earnings, sending the stock even lower than my buy price. Upon reflection, the timing of my purchase was not great.

There is now speculation that the company is considering splitting the business in two, among other strategic alternatives. It would be interesting to see how this unfolds.

I still like QCOM, despite the trying times the company is facing. The company is shareholder friendly and had $31 billion in cash and marketable securities on hand at the end of 2014, with practically no debt!

38 shares of QCOM adds $72.96 to DivGro's projected annual dividend income.

Thanks for reading! What do you think of this buy? Do you own shares of QCOM or are you considering buying shares?

16 comments :

  1. Hey DivGro,

    Solid buy! I'm happy to say so, as I am a recent shareholder of QCOM myself. :)

    My price was a little bit better than yours ($62.81) and I'm down almost 2% as well.
    The good news however: it probably does not matter much with a horizon of 20+ years.

    Best wishes, DfS

    ReplyDelete
    Replies
    1. Thanks DfS -- yes, $62.81 is a good entry point. But I agree, many years from now the exact entry point is not going to matter. Best of luck and great to be a fellow shareholder!

      Cheers
      FerdiS

      Delete
  2. Nice buy! I would like to average down our cost on Qualcomm shares in the near future. The company is feeling a bit of headwinds lately but I think they can recover. Sounds like there are some discussions about splitting up the company. If the split does happen I think that can only be a positive for Qualcomm.

    ReplyDelete
    Replies
    1. Thanks, Tawcan. I think I agree with you about the split. It seems like Qualcomm shareholders might benefit from a split, with the possibility of two strong, more focused companies out there. Let's see where this goes...

      Cheers
      FerdiS

      Delete
  3. QCOM is high on m list, but I took EMR at $51 for this weeks buy. I will join you soon on QCOM if it stays in $61 range. Wont buy for another two week tho, lot can happen in that time.

    ReplyDelete
    Replies
    1. Agreed -- a lot can happen in a week or two. EMR has taken a tumble and, consequently, its yield has really climbed! Good buy, Mike!

      Take care
      FerdiS

      Delete
  4. Great purchase, FerdiS. I just added to my position earlier this month at the $62 price level. Looks like a great opportunity to load on shares for the long term in a graet company

    R2R

    ReplyDelete
    Replies
    1. I agree, R2R -- great to add to my position and to dollar cost average down, securing a better YoC number. And long term is really what we're looking at with QCOM. Many years from now, some of the issues the company are dealing with now will be long forgotten.

      Delete
  5. Amazing buy. I love the company and its potential. It has been hit quite hard last 1 year which is perfect time for us to jump in.

    ReplyDelete
    Replies
    1. Thanks, Be Smart Rich -- we'll see what happens with regards to the splitting up talks. Whether QCOM splits up or not, I think it has great prospects going forward. And buying at this time sounded like a good idea to me!

      Take care
      FerdiS

      Delete
  6. Circling back on this one FerdiS. Tomorrow is payday, so I am a buyer and I can't find anything better than QCOM on my watchlist. I bought EMR when you bought QCOM last, but now closing at $60.15, 3.2% yield and me not have in one single IT company in portfolio I think its time for me to pull the trigger on QCOM. AAPL and STAG still high on my list. Looking forward to the open tomorrow.

    ReplyDelete
    Replies
    1. Some great opportunities now... especially after Friday's drop.

      Delete
  7. in @ $59.30. Great week to be a buyer!

    ReplyDelete
    Replies
    1. Yesterday was brutal and stock prices declined rapidly at the close. QCOM ended down at $57.61. This is why I don't play the "If only" game or try to time the market. I could say "if only" I waited until now to buy, I could have secured a 3.33% yield. Instead, I look at the long term. I believe 10 years from now, these buys would look great.

      Take care!

      Delete
  8. Yep, me either. I thought I got in at an OK price, then the thing just continued to drop. No worries, I am a long termer like you. Another company of yours-- GPS, is also ripe at the moment.

    ReplyDelete
    Replies
    1. Markets are continuing their downward trend. QCOM now at new 52-week low and yielding 3.62%!

      Delete

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