Drones and dividend stocks usually aren't mentioned together for two simple reasons. First, most "pure play" drone leaders like DJI Innovations are privately held. Second, "side bets" on the market -- like GoPro and Ambarella -- typically reinvest their cash back into expanding their businesses instead of paying dividends like mature tech companies.
However, there are still a few simple ways to gain exposure to the growing drone market with mature, dividend-paying stocks. Let's examine two such plays that are hidden in plain sight -- Qualcomm (NASDAQ:QCOM) and Intel (NASDAQ:INTC).
Qualcomm is the biggest mobile chipmaker in the world. But in recent years, its chipmaking business has been ceding market share to cheaper rivals like MediaTek, while its patent licensing business has come under fire from OEMs and regulators for allegedly anticompetitive practices. Qualcomm is trying to offset those pressures by diversifying away from the mobile market into adjacent areas like wearables, action cameras, connected cars, Internet of Things (IoT) devices, and drones.
For drone makers, Qualcomm offers Snapdragon Flight -- a custom credit card-sized board which bundles together its Snapdragon mobile processor, Hexagon DSP (digital signal processor) for real-time flight controls, SirfStar V global navigation satellite system (GNSS) for location-based services, as well as Wi-Fi and Bluetooth connections. The board also provides support for 4K video and additional sensors for autonomous flight and obstacle avoidance.
Simply put, it's an elegant all-in-one solution for any company that wants to quickly put a drone on the market. Qualcomm has already been testing the platform on autonomous flights over LTE networks, and several major drone makers -- including Chinese drone company Yuneec -- have already adopted the technology.
Drones won't move the needle for Qualcomm's chipmaking business anytime soon, but investors will get paid a 4% yield -- which is supported by a payout ratio of 70% -- for holding the stock. Qualcomm has also raised its dividend annually for 14 straight years.
Like Qualcomm, Intel faces a slowdown in its core businesses. Demand for its PC chips remains tepid, and enterprise customers aren't eager to upgrade their data center chips. That sluggishness has forced Intel to expand into higher-growth markets like the Internet of Things.
Intel's IoT business is still tiny relative to its PC and Data Center businesses, but it's gradually expanding its reach with new chips for cars, wearables, and drones.
Intel's answer to Qualcomm's Snapdragon Flight is Aero, a computing board that bundles together an Atom processor, a reprogrammable Altera FPGA for custom commands, wireless connections, a VGA camera, and onboard RAM and flash storage. It's paired with a RealSense depth-sensing camera for obstacle avoidance, and an Aero flight controller with autonomous flight features.
Intel also aims to fly its drones autonomously across mobile networks. Last year, it tested out autonomous drones across AT&T's LTE networks. That wasn't an exclusive breakthrough -- since Qualcomm did the same thing with AT&T a few months later -- but it proves that autonomous drones could be launched for enterprise customers in the near future.
Intel's drone business still accounts for a tiny sliver of its small IoT business, so it won't likely offset its PC and data center issues anytime soon. However, Intel still pays a solid 3% dividend, which is supported by a payout ratio of 44%, and it's raised that dividend annually for two years.
The key takeaways
If you want more concentrated exposure to the growing drone market, investing in GoPro, which produces the Karma drone -- or Ambarella, which supplies DJI with image processing SoCs, might make more sense. But if you want stable dividends from a company that will gradually benefit from the growth of drones over the next few years, Qualcomm and Intel might just fit the bill.
However, investors should be aware that the headwinds facing Qualcomm and Intel's core businesses won't dissipate anytime soon. Investors should carefully weigh these risks against the growth potential of their newer adjacent businesses to see if their stocks are worth buying.
Leo Sun owns shares of AT&T; and Qualcomm. The Motley Fool owns shares of and recommends Ambarella, GoPro, and Qualcomm. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.