It seems like just yesterday that Qualcomm was boosting its dividend and repurchase program. Oh wait, it was actually almost exactly one year ago that the mobile chip giant upped its quarterly payouts by 16%. That means it's that time of the year again: Time to return more cash to shareholders.
This time around, the company is boosting its dividend by an envious 40% to $0.35 per share quarterly, up from $0.25 per share quarterly. Notably, that's the biggest annual increase the company has announced in years. Over the previous four years, Qualcomm has increased its dividend payout by 6%, 12%, 13%, and 16%, in that order, so a 40% jump is quite generous indeed.
When you talk about dividend signaling theory, the clear signal that management is sending to shareholders is that the business remains rock solid, despite intensifying competition from the likes of NVIDIA and Broadcom , two companies looking to cut in on Qualcomm's market share.
NVIDIA's new Tegra 4i has been a long time coming, and it hopes its integrated LTE modem will make inroads into some of the OEM spots that Qualcomm currently enjoys. The Tegra 4 that doesn't include an integrated LTE modem is also en route to the market, but Qualcomm isn't scared. Senior VP Raj Talluri said the newest Snapdragon series of mobile applications processors "easily" beat NVIDIA's, in part because of higher levels of integration.
Broadcom recently launched a new baseband modem that supports LTE-Advanced, targeting the discrete modem market. Some analysts think that Broadcom could potentially score a win with the biggest buyer of discrete basebands out there: Apple . The iPhone maker is the largest OEM by volume that still uses discrete basebands since it uses its own in-house line of applications processors. On the other hand, other analysts think Qualcomm's seat at Apple's table is relatively safe.
Management must feel confident despite these competitive threats if it's willing to increase its dividend by such a healthy amount. Another reason why Qualcomm may feel so comfortable is that the Chinese smartphone market, which is now the largest in the world, just recently hit an inflection point. The migration to 3G, in which Qualcomm has a licensing fortress, is proceeding along swimmingly, with 2G subscribers declining for the first time ever. That bodes well for both Qualcomm's royalty business as well as baseband sales.
Catching up with Intel in another way
On top of the dividend, Qualcomm is also effectively doubling its share repurchase authorization. The company is replacing its current $4 billion repurchase authorization, which only had $2.5 billion left, with a new $5 billion repurchase program. The company noted that since initiating dividends and buybacks a decade ago, the company has returned a total of $19.9 billion to shareholders. That's a generous return of capital considering Qualcomm's current market cap is over $115 billion.
Qualcomm has now become the Intel of the mobile era, symbolically overtaking the PC chip giant in valuation late last year. Over the past few months, Qualcomm has extended its lead and is now worth $10 billion more than Intel. However, one area where Qualcomm still lags its traditional chip-making rival is dividend yield.
$0.90 per share
$1.40 per share
Sources: Intel and Qualcomm.
Value investors may still prefer Intel's payout, which yields two times as much as Qualcomm, even though Qualcomm has greater growth prospects going forward. IDC expects PC shipments to decline by a modest 1.3% in 2013, while the researcher expects smartphones to outsell feature phones for the first time this year on strong growth.
Following the announcement, shares have rallied and are flirting with new highs as investors are happy to be getting even more back.
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The article Qualcomm Flirts With Highs Thanks to a Dividend Boost originally appeared on Fool.com.
Fool contributor Evan Niu, CFA, owns shares of Apple and Qualcomm. The Motley Fool recommends Apple, Intel, and NVIDIA. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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