For investors looking for a dependable source of passive income, a systematic screening process is important. One useful method focuses on finding companies that provide an appealing dividend now and also have the fundamental financial soundness to maintain and possibly raise those payments in the future. This method favors quality and durability over seeking the absolute highest yield, which can sometimes indicate problems in a business. A functional way to apply this is by using fundamental ratings that assess a stock's dividend characteristics, earnings power, and financial condition together.
QUALCOMM INC (NASDAQ:QCOM), a key company in wireless technologies, was recently found using such a screening method. The stock was picked by a "Best Dividend" screen set to choose companies with a high ChartMill Dividend Rating (7 or higher), while also needing a minimum score for earnings power and financial condition. This layered filter tries to find businesses where the dividend is backed by strong operations and a firm balance sheet. A more detailed examination of Qualcomm's fundamental report shows why it fits these standards and deserves attention from investors focused on income.
A Firm and Increasing Dividend Characteristic
The central attraction for dividend investors is Qualcomm's policy of returning capital to shareholders. The company has built a dependable history, having paid and raised its dividend for more than ten years. This record of dedication is an important initial screen, distinguishing steady payers from irregular ones. The present dividend yield is about 2.21%, which is good compared to the wider S&P 500 average and notably higher than other companies in the semiconductor industry.
- Dividend Increase: Possibly more notable than the current yield is the increase rate. Qualcomm has raised its dividend at a yearly rate of about 6.56% over the last five years, showing a management team assured about the company's future cash generation.
- Durability Review: While the present payout ratio, the part of earnings given as dividends, is high at almost 69%, the report points out an important balancing detail: Qualcomm's earnings are rising quicker than its dividend. This situation is central for durability, as it implies the high ratio may get better over time without requiring a reduction in the dividend.
Fundamental Support: Earnings Power and Financial Condition
A high dividend rating by itself is insufficient; it needs to be supported by a stable base. This is why the screening method includes earnings power and condition ratings. For Qualcomm, these scores give assurance that the dividend is not being funded from weak finances or too much debt.
Earnings Power Firmness: Qualcomm receives a very good ChartMill Profitability Rating of 8. The company produces strong returns on the capital it uses, with a present ROIC of 21.40% that beats almost 95% of industry competitors. Its operating margin is also solid at 28%. These numbers show that Qualcomm's main business is very effective and creates significant earnings, which is the real origin of dependable dividend payments. A company that does not earn money cannot maintain payouts to shareholders over the long term.
Firm Financial Condition: With a ChartMill Health Rating of 7, Qualcomm displays a durable balance sheet. Important areas of firmness include:
- Good Liquidity: The company has enough short-term assets to meet its liabilities, with a Current Ratio of 2.82 and a Quick Ratio of 2.10.
- Controlled Debt: While its debt-to-equity ratio is higher than some competitors, the analysis notes that its free cash flow is enough to handle its debt. The report says it would take only about 1.16 years of current free cash flow to repay all debt, an indicator of good solvency.
- Actions Favorable to Shareholders: The company has been lowering its number of shares over recent years via buybacks, an additional way of returning capital to shareholders that can help per-share numbers like earnings and dividend growth.
Valuation and Growth Setting
From a valuation viewpoint, Qualcomm seems fairly valued, particularly compared to its own industry. Its Price-to-Earnings ratio of 13 is much lower than the semiconductor industry average and the wider market. This indicates investors are not paying too much for the present earnings and dividend. While future growth forecasts for revenue and EPS have become more moderate compared to the past few very strong years, they are still positive. For a dividend investor, a change from very fast growth to steady, profitable growth can frequently create a more predictable setting for regular dividend raises.
Is Qualcomm Suitable for a Dividend Portfolio?
For investors using a method that mixes yield with quality, Qualcomm offers a strong argument. It successfully meets a screen made to find durable dividends, backed by very good earnings power and a sound balance sheet. The mix of a good yield, a ten-year history of growth, and strong basic business numbers makes it notable as more than simply a high-yield stock, it is a profitable company that distributes its success to shareholders.
Want to examine other stocks that meet similar quality dividend filters? You can execute the screen yourself and see the complete list of outcomes here: Best Dividend Stocks Screen.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. Investors should conduct their own research and consider their individual financial circumstances before making any investment decisions. Past performance is not indicative of future results.
