Qualcomm (QCOM +2.88%) stock is down about 14% year to date following the recent tech sell-off. But the best reason to buy it is the 2.5% forward dividend yield, which also comes with significant upside potential as Qualcomm targets massive growth in the data center market.
It's rare to find a top tech stock offering this level of income and growth. Profits fully cover its $0.92 quarterly dividend, or $3.68 annualized. Over the last year, Qualcomm paid out only 36% of its free cash flow and 41% of its earnings in dividends. That leaves plenty of resources to fund its growth plans.
Image source: The Motley Fool.
Management raised its fiscal 2029 target to reach $40 billion in non-handset revenue. This includes data center revenue reaching $5 billion by fiscal 2027 and $15 billion by 2029. Qualcomm should also continue to see growing demand in its automotive and Internet of Things businesses.
NASDAQ: QCOM
Key Data Points
Qualcomm sees a significant opportunity to leverage its expertise in designing chip solutions for handsets into other markets, particularly artificial intelligence (AI) infrastructure. In fact, management expects its handset business to represent only a third of revenue by 2029.
The above-average yield suggests Wall Street is undervaluing Qualcomm's prospects. These non-handset opportunities should lead to strong margins. Management expects to grow the dividend at a low- to mid-single-digit rate as it returns most of its free cash flow to shareholders.
