Qualcomm-LogoAbout a month ago I talked about the fact that Qualcomm (NASDAQ: QCOM) was quietly becoming one of the most exciting capital returns stories in the tech industry.

Things have become even more exciting since then.

As I noted in April, with its cash flow generating abilities and strong balance sheet Qualcomm could deliver outsized shareholder returns faster than the market was anticipating.

That appears to have to come to fruition.

Last week the chip making giant launched a $5 billion accelerated buyback plan. This comes after the company issued $10 billion in debt earlier in May, which will be used to fund the accelerated buyback.

The accelerated buyback piggybacks off of Qualcomm’s March announcement that it would boost its annual dividend payment by 14% to $1.92 a share and put in place a $15 billion share buyback plan. Initially, some $10 billion was expected to be bought within the next year, with the ultimate goal being to return 75% of its free cash to shareholders.

Jana Partners, the activist investor pushing for more capital returns and a potential split of Qualcomm’s chip making and patent licensing businesses, thinks the entire $15 billion buyback should be done within six months. It looks like Qualcomm is well on its way to meeting those demands.

In terms of splitting up Qualcomm, it wouldn’t be easy, and there are certain synergies that come from having separate hardware and licensing business. But a breakup and valuation rerating would certainly mean upside in the near term.

However, we don’t need a spinoff to see impressive upside. The stock is already cheap due to near-term hiccups.

Qualcomm’s stock price has been punished of late because of regulatory issues in China and the loss of a large customer, Samsung, which decided to use more of its own mobile chips in its devices. Even with these issues, last quarter Qualcomm generated nearly $6.9 billion in sales and bested Wall Street expectations. Its full year fiscal 2014 revenues grew by 8% and earnings grew by 7%.

Despite the hiccups, there’s no reason to believe that Qualcomm can’t turn things around. Its licensing business has a leadership position and its hardware business will continue to benefit from growth in smartphone sales. The company also already settled with the Chinese government.

Qualcomm’s chip making and licensing businesses should both benefit from the rise of smartphone adoption in emerging markets. And despite the past issues in China, that market still remains a big opportunity for the company.

Qualcomm is also still a cash flow generating machine. The tech dividend stock generated nearly $5.2 billion in free cash over the last 12 months.

Even with all this, shares have remained pressured, with past negative news continuing to weigh on its stock price. Qualcomm is down 11% over the last year and is the notable laggard in the communications equipment industry.

Qualcomm is trading at a forward price-earnings ratio of 13.5 times next year’s earnings estimates, which is close to historical lows. It’s also below the likes of Intel (NASDAQ: INTC), Texas Instruments (NASDAQ: TXN) and Broadcom (NASDAQ: BRCM).

But its dividend yield of 2.8% is one of the highest in the industry, and it’s generating returns on invested capital in the mid-teens. Even with the $10 billion debt raise, its balance sheet is still ironclad, with nearly $16 billion in cash. Look for the wave of shareholder returns by Qualcomm to continue.

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Published by Wyatt Investment Research at