Qualcomm (NASDAQ:QCOM) shareholders can’t complain about the performance of Qualcomm stock so far in 2019. Up 41% year to date through Sept. 13, including dividends, investors are likely taking some profits.
If you are, congrats on the gains. If not, here are three reasons why Qualcomm stock remains an excellent long-term buy.
1. Free Cash Flow Generation
Over the summer, I had the opportunity to write about QCOM stock on two occasions in June and July. In the first article in June, I highlighted the company’s strong free cash flow generation.
As a result of its trailing 12-month free cash flow, I felt that it was an $80 stock, not a $60 stock. At the time it was trading just under $70. As I write this, Qualcomm is trading around $78, up more than 12% over the past 90 days.
Its TTM free cash flow was $4.9 billion, considerably higher than the $2.1 billion when I wrote about the company in June. That’s due to a $3.0 billion income-tax benefit through the first nine months of the fiscal year.
InvestorPlace contributor Mark Hake recently suggested that Qualcomm will generate more than $7 billion in free cash flow in 2019, reminding investors that its free cash flow yield (FCF) of 7.5% is three times Amazon’s (NASDAQ:AMZN) FCF yield of 2.5%.
Free cash flow generation and FCF growth are the biggest drivers of higher stock prices.
Although a big chunk of Qualcomm’s fiscal 2019 free cash flow is a result of a considerable tax benefit, the company consistently generates more than $5 billion in free cash flow with or without those one-time benefits.
This reason alone it’s worth owning QCOM for the long haul.
2. Great Dividend
Qualcomm currently yields 3.2%, a fantastic amount of income for a tech company. InvestorPlace’s Luke Lango recently called it a stable dividend stock to buy as fixed income possibilities vanish.
However, not only did Lango promote the company’s attractiveness as an income-generating stock, but he also suggested that it’s on the cusp of a multi-year growth spurt, which would also deliver significant capital appreciation.
“Not only does QCOM stock have a compelling multi-year bull thesis, but the stock is also paying investors to buy into that compelling bull thesis. It’s a win-win situation that ultimately gives QCOM the nod as a stable dividend stock to buy here and now,” he wrote.
Not only did Qualcomm get as much as $4.7 billion as part of its settlement with Apple (NASDAQ:AAPL), but it also gets the maker of iPhones as a customer for several more years, which itself will generate future revenues.
To be paid to go along for the ride is great news if you’re a dividend income investor.
3. 5G Will Be Good for QCOM Stock
Qualcomm just announced that it was buying out the rest of RF360, the joint venture between it and TDK (OTCMKTS:TTDKY), a partnership set up to strengthen Qualcomm’s RF business and help it transition to 5G.
The company ultimately paid $3.1 billion, which includes the remaining $1.15 billion interest it’s bought from TDK.
“Qualcomm Technologies’ second-generation RFFE solutions for its 5G portfolio will further enable OEM customers to design thin, high-performance, battery-efficient 5G multimode devices at scale and on time,” the company stated in its press release.
As InvestorPlace contributor Josh Enomoto and Faisal Humayun have argued in recent articles, Qualcomm is ready to benefit from the move to 5G in 2020.
Faisal points out that the global 5G chipset market is expected to grow from $2.1 billion in 2020 to $23 billion in 2026, a compound annual growth rate of 61%.
Enomoto wrote that Qualcomm’s headstart when it comes to 5G gives it a front-row seat to the changes taking place in the telecom industry — a position that will ultimately generate billions in profits for Qualcomm shareholders.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
