Showing posts with label Qualcomm. Show all posts
Showing posts with label Qualcomm. Show all posts

Monday, February 3, 2020

QCOM 11% gain in 33 days

QCOM has been off my radar recently due to their debt.  Qualcomm broke out a few months back when some lawsuits were settled and QCOM was able to pursue acquisitions.  Take a look at the fundamentals I use for my first screen of a stock and you will be see some good metrics, but also one point of concern.

QCOM Earnings Dividend
 Earnings > Dividend $3.62 $2.48
 Debt to Equity 3.25
 Dividend Yield 2.87%
 3 Yr. Rev. Growth 1.10%


Let's look at their debt with one measure which is D/E ratio knows as debt to equity ratio. This is the point of concern. Presented in the table below are their most recent four quarters of D/E ratio which shows QCOM managing the debt reasonably well.

DATE LONG TERM DEBT SHAREHOLDER'S EQUITY DEBT TO EQUITY RATIO
9/30/2019 $13.44B $4.91B 2.74
6/30/2019 $13.43B $5.46B 2.46
3/31/2019 $15.41B $3.87B 3.99
12/31/2018 $15.39B $3.62B 4.25



Another measure is to see if QCOM can continue to pay down that debt is cash flow; not just earnings but cash flow.   In the chart below you can see their most recent quarterly cash flow versus liabilities.   It appears they have adequate cash flow to pay their obligations but cash flow is volatile lately.   




With that caveat in mind, I am adding to QCOM today and selling this call.   I selected an expiration date after the next ex-dividend date of 3/4/2020.   I selected a strike price that will deliver a reasonable gain pretty quickly; in 33 days.   The table below presents the call as I executed today.

Stock Price on Open Call Expiration 
QCOM $86.34 3/6/2020
Cost Basis:   2/3/2020 $86.30
Strike Price: $94.00
Call Premium:  $1.25
Dividend  3/4/2020 $0.620
Call Yield on Basis 1.45%
Call + Dividend Yield on Basis 2.17%
$ Gain if Assigned $9.57
Max Return  if Assigned 11.09%


Take a look at how the call worked out today and then use the interactive call calculator to determine how the call return would look for the expiration, strike and premium you might use.


Enter Cost Basis:
Enter Strike Price:
Enter Call Premium:
Enter Dividend if ex-div before Option Expiration:
Call Yield
GAIN
Total Return Percent if Assigned
*Not all browers support the interactive tool.  You can always use the tool in the call options page.  http://www.themoneymadam.com/p/covered-call-calculator_01.html

Income investing is very challenging in this low interest rate environment.  Very hard for seniors. We have to go out on the risk curve meaning we need to be in equities to get any sort of income.  Right now we use dividend stocks and sell calls on those.

M* MoneyMadam
Disclosure:  Long QCOM with calls
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Monday, January 23, 2017

Covered Call income strategy with QCOM

I have invested in QCOM for the purpose of creating investment income many times.   You can search this blog for the many posts on the subject.  In the "dot.com" era, I had clients who made a killing on QCOM.  My husband retired in 1999 and although I was still working, my investing focused on income.  As an income investor QCOM did not pay me a dividend so I could not buy it. 

This post is about a call I sold today on QCOM.  One might think that since selling covered calls is an income strategy, I should have employed that strategy in 1999.  But part of my strategy is to realize the risk of covered calls is you get stuck with a stock that falls or even fails.  

  • Use a stock that pays a dividend
  • Select an expiration date after the next dividend
  • Realize no less than an 8% gain if your stock is called away.

When you lose principle, it is hard to be happy about a little call premium.  Therefore, I always sell calls on stocks that pay dividends.  I could still lose principle on paper, but I am getting paid to wait.  Moreover, if a company pays a dividend and their other fundamentals are solid (i.e. debt to equity ratio), it is highly likely your stock price will go up again and perhaps you will even have the chance to sell even more calls.

QCOM Fundamentals - getting paid to wait

QCOM took a real hit today on the news of a patent suit with Apple.  I took advantage of the stock price drop and bought at $55.50.  I may not have picked the bottom, but I thought it was a good price for me.  Their annualized dividend is ($.63 x 4 = $2.52) for a yield of 4.54% on my basis.  The next ex-dividend date is 2/27/2017. 

QCOM earned $3.80 last year; paying out $2.02 in dividends.  QCOM's debt to equity ratio is .37 suggesting a solid balance sheet.

THE CALL

This article points out the option activity in QCOM today.  https://www.dividendchannel.com/article/201701/noteworthy-monday-option-activity-qcom-wynn-intc-qcom-wynn-intc-INTC01232017note.htm/.  With this in mind, I looked for QCOM calls.

The call I selected is a $60 strike price with an expiration of 4/21/2017.  I will receive the February dividend provided my shares are not called away early.  Minimally I get an extra 2.52% in yield.  If my stock is called away, the total return is 11.59%.  See the table below.





Another call to consider is the April $62.50.  This call yields less but has more total return potential should the stock be called away. 

Two examples of using QCOM and covered calls to boost your income.

M* MoneyMadam

Disclosure:  Long QCOM with calls
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Tuesday, September 13, 2016

Which tech stock to add MSFT, QCOM, or AAPL?

The market has turned volatile and that means the VIX is up.  When the VIX is up, covered calls are more plentiful.   In this post I look at three stocks in the technology sector:  Microsoft (MSFT), Qualcomm (QCOM) and Apple (AAPL) that are under consideration as income stocks.   During times of volatility, opportunities are created. 

While each of these stocks is considered a technology stock, they are quite difference in many ways.  Without analyzing the similarities or differences in focus, strategy, or execution, I will apply my screening criteria to each one to decide if I should add to my position in the case of MSFT and AAPL and if I should again take a position in QCOM. 

MONEY MADAM SCREENING CRITERIA FOR INCOME

Target Dividend Yield = 2.75%

To remind you, I write about income stocks.  I am looking for solid companies with a strong history of delivering ever increasing income through dividends and covered calls.  My target dividend yield is 2.75% but I will compromise if there is a catalyst such as hefty call premiums or significant revenue growth that could suggest big capital gains down the road.

Dividend Growth = 4% minimum

The most useless data out there is inflation data.  If you believe the so called experts, some suggest deflation and some suggest a hint of inflation.  I look back at my expenses 10 years ago and 20 years ago and I can tell you that my expenses doubled about every 20 years.   Therefore,  in 20 years I must plan to produce twice the income I get now to cover my expenses.   Using a 4% dividend growth rate will get that done.

Covered Calls = 10% total return if the call is exercised

When I sell calls on my stocks to create income, I risk losing that stock to the call buyer and it happens quite often.  I would say more often than the conventional wisdom of 10% of the time.  Should my stock be called away this means I lose the chance for future capital gain in that holding.  Therefore, I must be sure that my total return makes it worth while.

My target total return on a stock that is called away is 10%.  I rarely sell a call with an expiration longer than 90 days and I almost always pick an expiration date that is far enough out that I receive the dividend (unless the stock is called away early.)  I also prefer the call premium to be equal to or greater than 1% of my basis.

MONEY MADAM SCREENING CRITERIA FOR SAFETY

The only way I will achieve my income goals using dividend stocks is if those stocks continue to grow.  My crystal ball is in the shop and I must, therefore, use historical data to help me predict future income streams.  Revenues and Earnings per share (EPS) create the cash needed to deliver ever increasing dividends.

Target Revenue Growth = 4% minimum
EPS must exceed dividend paid out

Safety for me is not measured by stock price volatility.  I am interested in total return but I have been in this business long enough to know that my stocks could tank like they did in 2009 but as long as they continue to pay the dividend, I will not suffer greatly.  Moreover, I should not have to worry about my stock going "belly up" if I choose a stock with a strong balance sheet.

Debt to equity ratio (D/E) of 1 or less or = industry standard

I use D/E ratio but I if you are adept at reading a balance sheet, you may use another criteria to make you feel comfortable with a company's balance sheet.

The table below presents this data on all three stocks.



The choice to initiate a position or add to a position is solely yours.  I will be adding Qualcomm to the 2016 Model Portfolio as it meets all my criteria including nearly a 1% call premium.  And I will add to my AAPL position on a pull back because the call premium is very robust and makes up for the low dividend yield.  Finally, I will hold MSFT for now.

Consider these three stocks for the income producing portion of your portfolio.

M* MONEY MADAM

Disclosure:  Long AAPL with calls, Long MSFT, with calls, expect to initiate a position in QCOM shortly.


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