Wednesday, July 29, 2015

Recent Buy – Qualcomm Inc

Whenever I make a purchase, I like to share my buys to document and illustrate how I am building my income stream over the course of months/years. My main goal is simply to keep investing at regular intervals and build my passive income over the course of time. In a sort of ways, I am building my own pension, hoping to get to a point where I can simply live off my dividends without touching my principal investment. The current volatility in the market provides an opportunity to pick up shares at attractive valuations which have been hard to find in the past. I decided to put some of my cash to work.

I added to my position in Qualcomm Inc (QCOM) with 20 shares @ $62.00. The stock yields 3.09% adding $38.40 to my annual dividend income.


Recent Buy Decision

  • Qualcomm is the world leader in wireless digital communication products. The company’s products or licenses can be found in almost every mobile device produced in the recent years. As a result, the company’s revenue is diverse and robust.
  • Whether a consumer buys an Apple (AAPL) iPhone, or Google (GOOG)(GOOGL) Android device, either a Qualcomm chipset or Qualcomm technology license can be expected to be present. No matter who wins the smartphone war, Qualcomm is the common denominator and will surely get a piece of the pie.
  • Some investors have raised questions about growth in smartphone – but I remain bullish as technology keeps improving taking us from one generation to the next, and Qualcomm leads the industry on this front.
  • A number of new market segments are on the horizon for development – wearables, smarthomes, smartcities, Internet of Things (IoT), the connected-car automotive sector etc.
  • Qualcomm pays $1.92 in annual dividends and currently yields over 3%. The company is also a proven dividend grower – having grown dividends for 13 consecutive years, with a 5-yr dividend growth rate of 19.2%.
  • The company is almost debt-free, having only recently deciding to tap into the debt market to increase buybacks and dividends.
  • Strong balance sheets (the company holds ~$16B in cash)
  • Attractive valuation (see chart below)
  • Read my full dividend stock analysis here
QCOM-FastGraphs1

Risks

  • The company came under intense pressure from China – when partners and technology users simply refused to pay the licensing fee. The Chinese government investigated Qualcomm for monopolistic methods and Qualcomm settled with a payment of $975M in antitrust fine. Similar issues may arise in the future.
  • The China issue has been a drag resulting in the stock being punished severely – now down ~16% YTD due to the fact that most of Qualcomm’s revenue comes from the Asia-Pacific region.
  • The  international earnings also cause a drag due to the strong US$.
  • The executive pay has risen alarming high in 2014 as they reward themselves handsomely.
  • Recent investments have been questioned by analysts and Qualcomm has acknowledged that some will need to be revisited and reviewed.
  • A tech company always have to be on the lookout from disruptive upstarts stealing market shares. Competition from bigger players such as Intel (INTC) is also mounting on IoT, smarthomes, connected-car fronts.

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