Updated from 1:02 p.m. EST
Wireless chip giant
has become the latest technology company to take the dividend plunge.
The company said Tuesday that it plans to pay out its first-ever dividend of a nickel a share on a quarterly basis beginning in March, amounting to about $160 million a year. It also announced plans to repurchase $1 billion worth of its common stock over the next two years.
Qualcomm joins a growing group of tech companies that have begun paying dividends amid President Bush's plan to eliminate taxes on dividend payments.
said last month that it plans to pay a small dividend, while
has said it is considering a similar move. Likewise,
has signaled it would reconsider paying dividends if the president's proposals are approved by Congress.
"These companies have a lot of money and not a lot of great projects," said Morningstar analyst Todd Bernier regarding dividend-paying tech companies. "It's right to give it back to investors.
Qualcomm isn't capital intensive. What do you do with all that capital?"
Some Wall Street analysts said Qualcomm is a model candidate for paying a dividend, as it generates hordes of cash but doesn't spend much. The company ended its fiscal year with $3.7 billion in cash and marketable securities. It also has no debt, and currently there are 783 million shares of common stock outstanding. Last year, the company had about $200 million in capital expenditures, and derived most of its profit from lucrative royalty payments on its technology.
Qualcomm owns nearly all the patents on code division multiple access, or CDMA, technology, which is built into cell-phones for major wireless carriers such as
. This year, 1 out of every 4 cellphones shipped are estimated to be based on Qualcomm-licensed technology, according to Thomas Wiesel Partners analyst Hasan Imam. At an investor's conference Tuesday, an executive said about 13% of the world's 1.1 billion wireless subscribers are on a CDMA system.
Major handset manufacturers around the world pay Qualcomm a cut of sales on phones based on CDMA technology, including
"Dividends are the party du jour," said U.S. Bancorp Piper Jaffray analyst Samuel May. "The company's doing very well and they're generating gobs of cash. They're ready to put their money to work."
Qualcomm Chief Executive Irwin Jacobs said, "Qualcomm has been generating increasing amounts of free cash from operations as a result of the success of CDMA technology, particularly with increasing third-generation CDMA network deployments around the world. He added, "In declaring the first dividend in our history and a stock repurchase program, Qualcomm's board of directors has determined that the company can return some of its cash to shareholders without impacting future revenue and earnings growth or restricting strategic opportunities."
Nevertheless, some analysts said the small dividend payout is relatively insignificant to the company's outlook. "This news is a mild positive for the stock," said Bear Stearns telecom equipment analyst Wojtek Uzdelewicz in a note to clients. "However, given the marginal nature of the stock buyback and the dividend, we do not believe that these developments merit a change in our investment stance on the company."
Uzdelewicz pointed out that the dividend yield falls below 1%. Likewise, tech giants
similarly pay out relatively small dividend yields: IBM's dividend yield is 0.72%, and Intel's yield is 0.47%. Hewlett Packard's yield is slightly higher at 1.63%.
U.S. Bancorp's May added, "It's a nickel a share, whoop-dee-doo."
Also, Qualcomm's decision to repurchase its stock had at least one analyst scratching his head. Morningstar's Bernier questioned the move, pointing out that the highest ranks have been paring down stock ownership in recent months. "I don't know why
Qualcomm will be buying back their stock," said Bernier. "That would counter all
of the insider selling since November."
Qualcomm's Jacobs indicated last November that he planned to sell up to 2 million shares of Qualcomm stock. Jacobs told investors the reason for his sale was to diversify his personal investment portfolio and in no way represented uncertainty at the company. He said the sale was largely related to "asset diversification and
to facilitate charitable giving commitments. Do not read any other motives into this matter. The overwhelming percentage of my net worth continues to be invested in Qualcomm."
The company's shares were up 21 cents, or 0.6%, at $37.83 in afternoon trading. While the stock is nowhere near its January 2000 high of $200, it is creeping back toward its 52-week high of $44.65 hit on March 11 last year.