Monday, June 29, 2015

QCOM at $59 Could Happen

I write about Qualcomm a lot because it has been such a good income stock that I have to share that kind of idea.

I buy my stocks using my four basic criteria but I allow myself leeway when I find a stock with special characteristics.   Qualcomm, symbol QCOM, is one of those special stocks.  I barely know silicon from silicone but I know dividends, growth and volatility.  When you can find a stock with a great balance sheet like Qualcomm's D/E (debt to equity ratio) of .029, that pays a good dividend while you wait for growth, that further fills your coffers with call premium money as it grows, you have made a very good pick.

Why I like QCOM

Currently, I am a touch underwater on my most recent buys of QCOM.   I sold calls and they have expired and so I sit with QCOM.   While I sit, the dividend just keeps going up.    If you owned it in May of 2010 your quarterly dividend would have been $.19.  Five years later your quarterly dividend is $48.   That makes QCOM's average annual five year dividend appreciation at 30%.  

I want $59

On a day like today with the market down 350 points, I look for opportunities.   I would like to add to my position at $59.    I am confident that even if it breaks down below $59, it will recover and I get a tasty 3.25% dividend while I wait.

In 2012 QCOM was quite volatile.  Three times it traded around $59; in February, again in August, and finally in November.   I would like to see a repeat of that volatility so I can sell calls and pocket the premium.  

Sell Calls Carefully

Careful selling of calls such as making sure the call is far enough out that you will get the dividend provided your shares are not called away is needed.   In addition to picking the right expiration, you need to pick the right strike price.    

Unless you are desperate, you do not need to sell a call with a strike price less than your basis.   I like to shoot for a 10% gain above my basis but for the right premium, I might take less.   I use my covered call calculator to make the decision for me.   If the gain totals 10% including the capital gain if it is called away, plus the call premium which is never less than 1%, and the dividend that would be paid if I hold the stock to expiration, then I go for it.

I like QCOM because it has proven to be a good income investment for me.   You may want to consider adding it to the income producing portion of your portfolio.


Disclosure:  Long QCOM