Why Qualcomm’s Dividend Hike May Be Viewed So Well

When the economic situation deteriorates, investors often sell whatever they can get out of in a panic. After the dust settles, most investors end up wishing they would have held on to their best stock positions. One issue that determines a company’s strength is its earnings power against its dividend payout. That’s where Qualcomm Inc. (NASDAQ: QCOM) comes into play. In a market panic, sometimes simple financial reassurance about the future can go a long way.

Qualcomm has had its share of ups and downs in the past decade. Fights with Apple and competition from all around against its premium processors for smartphones and tablets have been reported far and wide. What has often been overlooked is Qualcomm’s dividend, and that was already at a 3% yield after the sell-off took shares lower.

In an obvious effort to convey the message that the company will have earnings power long after the effects of the coronavirus, Qualcomm just announced a 5% increase to its quarterly dividend payout.

The company’s board of directors has approved an increase in the quarterly cash dividend to $0.65 from $0.62 per common share. Tuesday’s announcement noted that the hike will be effective for quarterly dividends payable after March 26, 2020.

The prior 3.3% yield was based on a $74.90 share price and $2.48 annualized payout. The new annualized dividend of $2.60 per common share will generate a yield of 3.47%. That is still high among the tech leaders today, and it is far higher than the yields on the 10-year and 30-year Treasuries (0.5% and 1.0% or so, respectively).

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When a company declares a dividend, and when it raises its dividend, it is something that has to be given deep thought. The underlying message is meant to imply that a company has years of earnings visibility, even if times are going to get tougher before they get better. Companies also know that they should expect to face a serious drop if they are ever forced to cut their dividends, so one way to avoid having to cut a dividend in the future is simply to not raise that payout too much ahead of time.

Qualcomm currently is expected to post earnings per share of $4.16 in 2020 and $6.13 in 2021. It’s way too soon to determine whether the coronavirus in China will hamper those earnings ambitions over a longer haul, but some investors may interpret this hike from Qualcomm as a message that this too shall pass.

Qualcomm CEO Steve Mollenkopf said, “We are pleased to announce an increase in our quarterly dividend, reflecting our continued commitment to returning capital to stockholders.”

Qualcomm shares were up more than 4% at $75.96 on Tuesday morning. Its 52-week range is $54.54 to $96.17.

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