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Qualcomm (QCOM) Rewards Shareholders With 5% Dividend Hike

Zacks Equity Research

Qualcomm Incorporated QCOM recently announced a 5% year-over-year hike in its quarterly dividend payout to 65 cents per share or $2.60 on an annualized basis. The news seemed to have struck the right chords with investors as share prices rose 8.6% to close at $78.89, yesterday. This is rather encouraging, given the fact that the broader market sentiments were on the downtrend as the coronavirus pandemic fueled apprehensions of a global economic slowdown.

Based on the closing price, as of Mar 10, the proposed dividend affirms a yield of 3.3%. A steady dividend payout is part of the long-term strategy of Qualcomm to provide attractive risk-adjusted returns to its stockholders. Additionally, healthy dividend increases at periodic intervals have been one of its strengths.

The current hike reflects the inherent financial strength of the company and strong cash flow generated from continued focus on high-margin businesses and healthy execution of operating plans. Qualcomm is one of the largest manufacturers of wireless chipset based on baseband technology. The company is focusing on retaining its leadership in 5G, the chipset market and mobile connectivity with several technological achievements and innovative product launches.

Qualcomm has redefined the computing and mobile ecosystem globally with the launch of the QCA6390 Connectivity SoC product. This game-changing and, arguably, the most advanced integrated offering from Qualcomm is likely to deliver path-breaking performance in the 5G era and provide it a competitive advantage against rivals.

The company has been primarily focusing on developing premium category Snapdragon 8 series chipsets that reportedly deliver speeds of up to 7 gigabits per second with a more powerful X55 5G modem. These chips are mostly found in high-end mobiles and smartphones, which put them beyond the reach of commoners. At the same time, Qualcomm is also seeking to expand its product portfolio and develop mobile phone chips for the masses. This move is intended to drive sales and achieve economies of scale through mass production. In particular, Qualcomm is mulling to add 5G capabilities to its cheaper chipset versions of Snapdragon 6 and 7 series.

For calendar 2020, Qualcomm estimates sales of 1.75-1.85 billion units, up approximately 3% at the midpoint with 175-225 million 5G handset units. The company anticipates witnessing two inflection points in fiscal 2020. The first inflection point realized during the fiscal first quarter is likely to continue in the first half of fiscal 2020, with continued strength and acceleration of 5G demand. The next inflection point is anticipated to be realized in the fiscal fourth quarter with the launch of additional 5G flagship handsets and is likely to extend to fiscal 2021.

Shares of the company have gained 43.8% in the past year compared with the industry’s growth of 1.8%.

All these positive drivers and sound financial management probably led to the quarterly dividend hike.

Qualcomm presently has a Zacks Rank #2 (Buy). Other similar-ranked stocks in the industry include Motorola Solutions, Inc. MSI, PCTEL, Inc. PCTI and Viasat Inc. VSAT. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Motorola has a long-term earnings growth expectation of 8.5%. It delivered a positive earnings surprise of 6.6%, on average, in the trailing four quarters.

PCTEL surpassed earnings estimates in the trailing four quarters, the positive surprise being 150.6%, on average.

Viasat delivered a positive earnings surprise of 402%, on average, in the trailing four quarters.

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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
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