Qualcomm (NASDAQ:QCOM) has been a wild, up-and-down ride for the past three years, which has probably left some long-term investors investors feeling a bit queasy.
First, there was a lot of volatility in the stock because of the failed NXP Semiconductor (NASDAQ:NXPI) acquisition. Then there were ongoing issues with Apple (NASDAQ:AAPL), that were raging until earlier this year when they were finally resolved. Both companies dropped all lawsuits involved at the time. But the combined volatility from all this uncertainty has provided investors multiple opportunities to go long over the past three years.
Going forward, given the clarity the company now has with the Apple dispute done and over with, Qualcomm has the opportunity to return to being a stellar dividend growth stock.
QCOM Stock and the Chip Sector Dividend Yield
When looking at the major players in the chip sector, Qualcomm has the second highest dividend yield only to Broadcom (NASDAQ:AVGO).
I think I’d give the edge to Qualcomm over Broadcom right now because of the fact that Broadcom is still digesting the nearly $19 billion CA Technologies acquisition that closed in November 2018.
|MXIM||Maxim Integrated Products||3%|
|AMD||Advanced Micro Devices||NA|
Increasing Cash Flows & Share Repurchases
An attractive aspect for Qualcomm, as I mentioned above, is the fact the Apple dispute is over and the deal the two companies struck will allow Qualcomm to return to a point where they are generating higher cash flows than they are now.
As you can see in the chart below, cash flows have been trending down for years as the saga has gone on and now I expect that trend will reverse.
An additional positive aspect for Qualcomm is they used a large portion of the cash they had accumulated to repurchase a massive amount of stock. Shares outstanding for Qualcomm are down nearly 18% year-over-year, which will help support future dividend growth.
Technical Outlook for QCOM Stock
Click to Enlarge The technical outlook for Qualcomm is appealing because the stock is near the midpoint of the range that it has traded in this year. With the drop that occurred last week, shares are right near the 38.2% retracement level.
In addition, many times when a stock has a large gap up, it will retrace and “fill the gap.”
As you can see in the chart, shares of Qualcomm gapped up from $70 to $79 on April 17. The $70 level is right in the buy zone between the 50% level of $69 and the 38.2% level of $74 would be a quality entry point.
The bottom line for Qualcomm is cash flows should be increasing going forward. When the potential for increasing cash flows is combined with a significantly lower share count, Qualcomm can support a strong pace of dividend growth forward. Shares are right near a level of technical support and a quality buy zone, which makes any weakness in the stock an opportunity.
As of this writing, Brad Kenagy holds a position in NXP Semiconductor.