Qualcomm a Long-Term Dividend Bargain at Current Levels (QCOM)
August 26, 2015 – by Richard Band
In the mobile tech world, hitching your wagon to Apple (AAPL) can work for you and against you.
As the recent selloff makes clear, chip maker Qualcomm (QCOM) has seen its fortunes — and stock price — inextricably linked to the iPhone juggernaut. And that hasn’t worked out too well in recent days.
However, as one of the top two chipmakers on the planet, QCOM is more than just an Apple vendor. And while it will be affected by China’s sluggish economy, if you look a little deeper you will see that there is plenty of long-term growth in QCOM stock.
It’s certainly true that the broad Chinese economy is struggling to regain its former growth. But the growth in mobile telecommunications on the individual level continues to expand rapidly. And as a leading supplier to AAPL, this growth is certain carry forward, albeit at a slower pace in coming quarters.
Qualcomm: A Good Stock at a Great Price
QCOM is also a supplier to other major phone makers and supplies telecom equipment, too. If China looks to invest in growth, it will certainly be expanding its wireless broadband speeds and coverage as part of its infrastructure efforts.
The same can be said of its massive neighbor India as well. There has long been a fierce rivalry between India and China. Now that China has shown some serious weakness, it’s likely thatq India, under its new Prime Minister Narendra Modi, will look to make its case as a major global player. The mobile phone market in India is also a compelling growth story for global mobile carriers and phone makers.
On a more technical level, QCOM’s legendary Snapdragon chip is about to release a new model, the 820 with an upgraded Hexagon 680 digital signal processor (DSP).
Problems with the Snapdragon 810 cost QCOM a big client last year — most think it was Samsung’s Galaxy S6 — but the new chip may help woo the client back and win some new orders as well.
The 820 has been designed to run ‘always on’ apps — like step counters or calorie burners — more efficiently and with less power drain. The DSP allows these functions to run without having to power the core processor. These types of apps are in the vanguard of the Internet of Things sensors that will be used in everything from smart clothing to smart watches to smarter cars.
Another compelling feature of QCOM here is its 3.5% yield. That’s about double the U.S. inflation rate at this point. It means you can buy into one of the top tech growth companies in the world and while you wait for growth to take the stock back to its former glory and beyond, you can receive a rock-solid inflation-beating dividend for your patience.
Year-to-date, QCOM is off 27%, and about half of that drop occurred in the past week. But savvy investors make their money by knowing the difference between a stock that still has more downside and one that is a great value at current levels.
Given the company’s incredibly strong intellectual property reserve, the organic growth that is latent in the most populous nations on the planet and its impressive dividend, you would be hard-pressed to find a better value in the tech sector at the moment.