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.
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.
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.