Qualcomm Using Higher Dividends and Buybacks to Compensate for Earnings

In terms of the plan, Qualcomm intends to repurchase $10 billion of its common stock within about 12 months of this announcement. At the same time, the company maintains its commitment to shareholders to return a minimum of 75% of its free cash flow to the stockholders through share repurchases and dividends.

However, Qualcomm did not stop there. Additionally, the board approved a 14% increase to the quarterly cash dividend. This would raise the annual dividend payout to a total of $1.92 per share, or a yield of 2.6% from Monday’s close.

Steve Mollenkopf, CEO of Qualcomm, said:

Our business continues to generate substantial operating cash flow, and today’s announcement represents an important step in returning that cash to our owners while still preserving the strategic flexibility needed to drive stockholder value through growth. I am pleased that we continue to build on our track record of returning capital to stockholders, having exceeded each of our capital return commitments in 2014 and returned approximately $37 billion to stockholders since these programs began in 2003.

It is also worth noting that in 2014 fiscal year, the company exceeded its commitment to return 75% of its free cash flow to stockholders through stock repurchases and dividends, returning a record $7.1 billion, or 93% of free cash flow.

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In mid-February, Qualcomm reached a resolution with China’s National Development and Reform Commission regarding its Anti-Monopoly Law investigation. The chip giant was found to be in violation and must pay a fine of $975 million (at current rates). At the surface level, nearly $1 billion seems like a bad deal, but looking deeper, it is actually very advantageous, per research reports. The terms of the new royalty deal were less than perfect, and the firm views the deal better than feared and a net positive for Qualcomm.

In late January the firm also reported its quarterly financial results and, subsequently, shares took a dive. This was nearly a repeat of fourth-quarter earnings, wherein it had the largest dollar decline since 2000, but in fact it was worse. Shares were down around 11% as the trading was wrapping up in the last hours. Even looking back to the fiscal third quarter of 2014, we would see the same situation. At this time shares fell only 6.7% on the next day and 10% in a week’s time. After seeing this negative pattern for recent earnings reports, investors should be wary of holding on to this stock during earnings.

Shares of Qualcomm closed up 1.7% at $72.71 on the day. Following the announcement, shares were up another 2.3% at $74.39 in after-hours trading. The stock has a consensus analyst price target of $75.06 and a 52-week trading range of $62.26 to $81.97.

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