Qualcomm (NASDAQ: QCOM), the giant wireless chip maker, proved last week that dividend investing can arouse the senses. More important, it can enrich the portfolio.
Qualcomm shares have soared 50% over the past week.
Investors have been motivated to buy Qualcomm shares on news that the company reached a legal settlement with a major, and often belligerent, customer.
Apple (NASDAQ: AAPL) and Qualcomm had been embroiled in a bitter 18-month standoff. The hostilities were predicated on Apple’s use of Qualcomm technology in the iPhone.
The hostilities were punctuated with insults.
Apple continually denigrated Qualcomm’s technology, claiming other vendors – most notably Intel (NASDAQ: INTC) – offered comparable technology. Apple even claimed that it would develop technology in-house to rival Qualcomm.
Hostilities were further stoked by Apple’s stinginess.
Apple refused to pay Qualcomm royalties for using Qualcomm technology in Apple iPhones. Apple was estimated to be $7 billion in arrears on its royalty payments.
It was all posturing on Apple’s part, as we discovered last week.
The settlement was a big deal for Qualcomm.
The settlement includes a six-year license deal and a multiyear chipset supply agreement. The settlement ends all ongoing litigation between the companies.
Apple buckling on royalty payments was the biggest deal of all.
Qualcomm refused to reveal how much Apple will pay in catch-up royalties. The scuttlebutt on the street points to Apple paying $6 billion to settle its bill.
As for the future, Apple will pay Qualcomm $9 per iPhone on top of a single $6 billion payment. The investment bank UBS had projected that Qualcomm would settle for $5 per iPhone.
A flood of Wall Street upgrades followed news of the settlement: Analysts at JP Morgan, Citigroup, Morgan Stanley, Stifel Financial, Cowen & Co. all raised Qualcomm rating.
Most Wall Street analysts raised their price targets. The new price range of $80-to-$100 is $30 higher than the old price range.
The Qualcomm saga offers a couple of lessons dividend investors should heed.
Lesson One: Stay the course with a proven dividend grower.
Qualcomm is a proven dividend grower. Qualcomm began paying a dividend 16 years ago. The dividend has been increased every year since.
The average annual increases have been anything but stingy.
The dividend-growth stock has increased its dividend annually at a 17% clip. The annual dividend has increased 12-fold since 2003.
Share price growth has lagged dividend growth, but the share price of the dividend-growth stock has moved in the same direction. Qualcomm shares are up fivefold since the company began its dividend-growth journey.
Lesson Two: Ensure you remain invested to capture the big-pop days, like those of Qualcomm.
I first recommended Qualcomm shares to our High Yield Wealth readers in July 2016. Qualcomm shares were trading near $52 at the time. The shares have traded in the $50s through most of 2019.
Annual dividend increases, even when Apple was ignoring its royalty bill, proved Qualcomm remained financially strong. Sustained dividend growth signaled better days ahead.
We can’t know with certainty when better days for this dividend-growth stock will materialize, but we need to remain invested to capture the benefits when they do.
Data compiled and analyzed by Index Fund Advisors show that big gains — the wealth-enhancing gains — are frequently concentrated in a few days.
If you miss even a finger-count of these big-gain days, your investment returns suffer the consequences.
The table below covers the S&P 500 from Jan. 1, 1998 through Dec. 31, 2017.
The hit to investors’ returns for missing even a finger-count of big-gain days was consequential.
Missing five big-gain days over the period meant disgorging 45% of your returns over the 20-year holding period. Had you missed 10 days, you would have forfeited 67% of your investment returns.
If you were a Qualcomm investor before last week, congratulations on your windfall from this dividend-growth stock.
If not, ensure you follow that dividend going forward.
As the dividend goes, so goes the share price. And as Qualcomm proves, the share price can go by leaps and bounds.