Qualcomm shows it can keep its momentum
The company announces a significant dividend increase, which is a show of faith by the board of directors.
I see this as, first, a move to keep up with the Apples of the world by hiking the yield on the shares -- about 2% after Wednesday's move -- to a level roughly comparable to the 2.65% yield on Apple (AAPL) or the 2.65% yield on shares of Cisco Systems (CSCO). Certainly Qualcomm has the cash flow and the cash balances to keep up.
Second, the dividend increase is a strong vote of confidence by the company's board in Qualcomm; that it will be able to keep up the pace of recent quarters. Unlike a share buyback, which can be announced and then never completely executed, a dividend is a major commitment of company cash, and company boards know that the company's share price will get pummeled if they have to cut the payout.
As of Dec. 30, Qualcomm had cash and cash equivalents of $10.1 billion onshore and $18 billion offshore.
Qualcomm is a member of my Jubak's Picks portfolio. On Jan. 31 I raised my 12-month target price on the shares to $82 from $77. The dividend and the buyback are transfers of cash from the company to shareholders; and while an increase to a 2% yield is appreciated, I don't see the move as a reason to raise my target price at this point.
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