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:
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
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!
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