Wednesday, December 2, 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. This earnings season has been an array of earnings and revenue misses and with that, comes volatility providing opportunities for long term investors to pick up shares at attractive valuations. Last week, I decided to put some of my cash to work.



I added to my position in Qualcomm Inc (QCOM) with 15 shares @ $50.98. The stock yields 3.8% adding $28.80 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.
  • Most short-term speculators seem to be too focused on the smartphone market. Remember that Qualcomm is a communications giant and its web of innovative technologies is not limited to the smartphone industry. Yes, most of its growth came from the smartphone industry in the last decade, but technological development does not stop there…there’s a plethora of fields that Qualcomm researches, innovates and invests in. New market segments that look lucrative include – wearables, smarthomes, smartcities, Internet of Things (IoT), the connected-car automotive sector, neural network chips etc.
  • Qualcomm pays $1.92 in annual dividends and currently yields ~3.8%. 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 ~$22B in cash)
  • Attractive valuation (see chart below)
  • Read my full dividend stock analysis here
QCOM-Nov092015

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 $975M in antitrust fine. Similar issues may arise in the future.
  • The  international sales, where Qualcomm makes most of its money results in a drag due to the strong US$.
  • 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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