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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (124570)	10/15/2002 9:01:52 AM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 152472

If they pay out $1 a share well, first of all they don't even earn a dollar a share (TTM), and cos typically don't pay dividends exceeding their earnings (except in special cases). here's a little primer on dividends on the market, which may give you some ideas as to what is reasonable for QCOM: historically, cos have earned about $7 per share for every $100 of market cap (about a 14.5 PE). also historically, they've paid $4.26 per $100 of market cap as dividends (4.26% dividend yield). that leaves them $2.74 per $100 of market cap to plow back into their businesses, so that they can grow the dividends at a positive real rate. this means about 60% of earnings go to the people who deserve it (the ownwers) and 40% goes back to grow the business. contrast that with today's typical tech co. first of all, the main earnings they trumpet are pro forma, which means they don't conform to any standard and usally aren't even audited (the GAAP earnings, which receive a lot less hype, are typically the only audited ones). of this unaudited, nonstandard hypothetical amount of money, typically zero goes back to shareholders as dividends. this means it all goes back to "grow the business", or buy back stock, which is supposedly more "tax-efficient". this is a total joke, because share counts on most major cos have risen. the buybacks that do exist often serve only to (partially) counteract the tremendous dilution caused by the option programs these cos have. (at least QCOM doesn't waste a lot of money on such programs) so they give options to employees, then instead of giving cash back to the owners, they use it to buy back overpriced shares on the common market, so their future pro forma numbers won't look too bad. in other words, money that used to go to shareholders now simply goes to stock buyback programs, which often as not don't even keep pace with tremendous options dilution. very simply, from a shareholder's perspective, and in terms a caveman could understand... Options = BAD Dividends = GOOD so what about QCOM? let's assume their "pro forma" numbers are real, even though hueyone has pointed out an enormous discrepancy between those numbers and the GAAP numbers and what S&P calls "core earnings". so let's say they actually "earn" a dollar. if they pay out 60% of this dollar, then that's a 60-cent dividend. the average price-to-dividends on the DJIA was 30x at market PEAKS, corresponding to an $18 price for QCOM. at market TROUGHS, the average was 16x, corresponding to a price of $9.60. split the difference and i get about $13.80. again, that assumes QCOM has a solid dollar of earnings. bulls perhaps believe this. but do they believe QCOM will pay out 60 cents while they have an option plan? i seriously doubt it.