Stock Valuation Qualcomm

The next stock valuation is about a stock I recently mentioned in my watch list. It will be about Qualcomm and I just want to give you more details why I am positive about buying some shares in the near future.

Company Overview

Qualcomm Incorporated (QCOM) is a semiconductor company that designs, manufactures digital wireless telecommunications products and services. The Company operates through the following segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing, Qualcomm Wireless & Internet, and Qualcomm Strategic Initiatives. Qualcomm was founded in 1985, and is headquartered in San Diego, CA. Qualcomm’s success is tied to its ability to consistently make its semiconductor chips cheaper and faster than its competition. Qualcomm increase its dividends for now 14 years and recently announce a dividend increase from 0.53 USD to 0.57 USD per quarter. The next ex-dividend date will be on the 26th of May.

Valuation

Currently QCOM is priced  at 52.50 USD per share.

Valuation_QCOM

If I take the weighted average of the 4 ratios according to the 5  year average the price would be at 62.09 USD. That means the current price is 15.4% below its 5 year average. The 5 year high was at 81.32 USD which was about 3 years ago, so currently the stock trades 35.3% below its 5-year high.

The fair market value ratio of the semiconductor sector , according to morningstar is currently at 1.33. If I divide the current price by it I will get a price of 39.47 USD.

Earnings per share growth

In 2011 the EPS were at 2.52 USD and EPS in 2016 were at 3.81 USD. This makes it an average growth per year of 8.65%.  This is a quite stable growth but nevertheless I should also mention that in 2013 and 2014 were at higher level than the one of the last year.

Dividend History and Future

QCOM has a good dividend history with increasing the dividend for 14 years in a row. In the last 5 years, the average growth per year is 20.05% based on a dividend of 2.02 USD in 2011 and a current full year one of 2.28 USD.  Even though the dividend is already on a very high level the pay out ratio is still on a reasonable level

An important point for my buying decision is as well the dividend yield on cost, which is currently at 4.34% based on the new yearly dividend of 2.28 USD. After tax my minimum yield, I want to reach within the next 3 years, should be at 2.8%. This means it should have a yield of 3.9% before tax.

Assuming now a dividend growth rate of 5% per year the dividend in 2020 will be at 2.64 USD, which means a yield on costs of 5.03% before tax.

Dividend Investor Community

Let’s have a look who from the community lately bought some shares of Qualcomm:

Investment Hunting bought 100 shares in January

My dividend pipeline bought 45 share in January

Diligent Dividend bought 19 shares in February

So as you can see I could not find that many investors who bought some shares of Qualcomm this year. Of course I could not look at all of the dividend blogs out there, They are just too many but nevertheless I have the feeling that Qualcomm is not the one of the favorite dividend stocks. Maybe the dividend history is too short or the sector is too dynamic. But I think QCOM can be a good addition to every dividend income portfolio.

Conclusion

After all I have to say that Qualcomm is undervalued and for me a very good investment at the current price. When looking at the balance you can see an impressive debt to equity ratio of 0.32. The dividend is not only fully covered by its EPS it is also very safe when it comes to free cashflow per share.

What do you think about QCOM? Do you already have it in your portfolio or would you buy it at its current price?

Disclosure: Long QCOM

I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding.

3 Comments

  1. First off, thanks for the mention. The valuation on this company is amazing, anything south of $60 Is a great entry. The acquisition of NXP will be massive, the company is almost a dividend contender with 15 of increases, the average rate at which they have increased dividends is fantastic and the payout ratio is still at a relatively healthy level. Not to mention this company is leading development for 5g modems which will be an amazing cash cow down the road. Long QCOM.

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