Over the past year, many bulls have argued that Qualcomm's (NASDAQ:QCOM) high dividend yield would limit the stock's downside potential. That forward yield recently hit an all-time high of 5%.

Unfortunately, that yield skyrocketed mainly because the stock dropped 20% this year. But with the stock now trading at just 15 times this year's earnings, income investors might be wondering if Qualcomm's dividend is worth the pain. Let's take a closer look at that payout to find out.

A tired businessman holds his glasses.

Image source: Getty Images.

How sustainable is Qualcomm's dividend?

Qualcomm raised its dividend annually for 13 straight years. But over the past 12 months, Qualcomm has spent 91% of its free cash flow (FCF) on dividend payments -- a multi-year high.

QCOM Cash Dividend Payout Ratio (TTM) Chart

Source: YCharts

On an EPS basis, Qualcomm spent 87% of its GAAP diluted earnings per share on dividends over the past four quarters. Analysts expect Qualcomm's earnings to slide nearly 22% this year, so both its FCF and earnings-based payout ratios should keep rising over the next two quarters.

On the bright side, analysts expect Qualcomm's earnings to rebound 11% in fiscal 2019, which starts on Sept. 25. Qualcomm, however, expects its non-GAAP earnings to more than double to $6.75-$7.50 per share in 2019 based on three big catalysts.

The three catalysts

First, Qualcomm plans to cut costs by $1 billion. It announced 1,500 job cuts in California in April, and plans to layoff an undisclosed number of additional workers overseas.

Second, Qualcomm hopes to close its planned takeover of NXP Semiconductors (NASDAQ:NXPI), the biggest automotive chipmaker in the world. Doing so would boost Qualcomm's annual revenues by about 40%, and be "significantly accretive" to its non-GAAP earnings after closing.

Third, it plans to settle its legal disputes with Apple (NASDAQ:AAPL), other OEMs, and government regulators over its licensing fees. Those parties all claim that Qualcomm's cut, which equals up to 5% of the wholesale price of a mobile device, is too high. Qualcomm thinks resolving those issues would add $1.50-$2.25 to its 2019 earnings.

But plenty of headwinds and uncertainties

Of those three catalysts, Qualcomm only has control over its planned cost cuts. Its acquisition of NXP remains in limbo because China's MOFCOM (Ministry of Commerce) hasn't cleared the deal and NXP's shareholders haven't tendered enough shares yet.

Two boxing gloves featuring the flags of the U.S. and China.

Image source: Getty Images.

The U.S. Commerce Department's decision to block American companies from selling components to Chinese tech giant ZTE also affects Qualcomm in two ways. First, it prevents it from selling SoCs for ZTE phones, which could reduce Qualcomm's annual revenues by about $500 million (2% of its estimated revenues this year). Second, it encourages China's MOFCOM to retaliate by blocking the NXP deal.

Qualcomm plans to repurchase up to $30 billion in shares if the NXP deal fails. That would boost its earnings, but Qualcomm would also remain heavily exposed to the mobile market, with limited exposure to connected cars.

As for Apple, there's no sign that the iPhone maker wants a truce with Qualcomm. Instead, it's reportedly exploring ways to ditch all Qualcomm modems from future iDevices, which would hurt Qualcomm's chipmaking unit as the licensing battles take a toll on its licensing unit.

So is a 5% yield worth all the drama?

Qualcomm's stock looks cheap, and its 5% yield looks tempting. But the company faces too many headwinds to be considered a safe income investment. Investors looking for a comparable yield with safer fundamentals should stick with leading telcos like AT&T or Verizon instead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.