1 Incredible Reason to Buy Qualcomm Stock Right Now
Key Points
The stock is down about 14% this year, giving investors a roughly 2.5% forward yield -- with potential upside tied to its data center growth push.
The dividend looks unusually attractive for a top tech name and is well covered, leaving ample cash to fund expansion.
Qualcomm is targeting $40 billion in non-handset revenue by 2029 (including up to $15 billion in data center revenue) as it shifts toward AI infrastructure.
- 10 stocks we like better than Qualcomm ›
Qualcomm (NASDAQ: QCOM) stock is down about 14% year to date following the recent tech sell-off. But the best reason to buy it is the 2.5% forward dividend yield, which also comes with significant upside potential as Qualcomm targets massive growth in the data center market.
It's rare to find a top tech stock offering this level of income and growth. Profits fully cover its $0.92 quarterly dividend, or $3.68 annualized. Over the last year, Qualcomm paid out only 36% of its free cash flow and 41% of its earnings in dividends. That leaves plenty of resources to fund its growth plans.
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Management raised its fiscal 2029 target to reach $40 billion in non-handset revenue. This includes data center revenue reaching $5 billion by fiscal 2027 and $15 billion by 2029. Qualcomm should also continue to see growing demand in its automotive and Internet of Things businesses.
Qualcomm sees a significant opportunity to leverage its expertise in designing chip solutions for handsets into other markets, particularly artificial intelligence (AI) infrastructure. In fact, management expects its handset business to represent only a third of revenue by 2029.
The above-average yield suggests Wall Street is undervaluing Qualcomm's prospects. These non-handset opportunities should lead to strong margins. Management expects to grow the dividend at a low- to mid-single-digit rate as it returns most of its free cash flow to shareholders.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Qualcomm. The Motley Fool has a disclosure policy.
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