Dear Mr. Berko: I am 66 and will retire next year with a $1,365 monthly pension and a 401(k) worth $349,000, which I rolled over to an individual retirement account. I have no debt and will maximize my Social Security by waiting until age 70 to take checks. I told my new stockbroker that I want to invest for dividend and principal growth, and he suggested Qualcomm, Maxim Integrated and Verizon. What do you think?
— G.D., Vancouver
Dear G.D.: I think you have an expialidocious broker.
Qualcomm (QCOM-$65.71), founded in 1985, which makes chips — and plenty of them — has excellent long-term appreciation potential and has an attractive, well-supported dividend, which yields 3.2 percent. QCOM is engaged in the commercialization of wireless communication technology. QCOM is the biggest mobile chipmaker in the world, and when its merger with Netherlands-based NXP Semiconductors is fully integrated, QCOM will become the biggest automotive chipmaker in the world. Revenues zoomed from $5.6 billion in 2004 to $23 billion in 2016, and share earnings grew from $1.09 to $4.30 in that time frame. By 2020, those revenues could grow to $28 billion, and share earnings could rise to $6.40. And QCOM’s dividend, which was 19 cents in 2004, increased in each of the past dozen years, all the way to $2.12. The consensus says that by 2020, the dividend could rise to $3.10, which would be a 5 percent yield on the current price. Analysts have a four-year price target between $90 and $110. Meanwhile, Market Edge, Thomson Reuters, Argus Research and S&P Capital IQ rate QCOM as a “buy.”
Maxim Integrated Products (MXIM-$40.46), founded in 1983, has 7,200 employees designing, producing and selling $2.3 billion worth of linear and mixed-signal integrated circuits. With its high-quality power management ICs for servers and communications equipment, the company expects to produce impressive results. When revenues broke the $1 billion mark in 2003, MXIM earned 91 cents a share and paid its first dividend of 8 cents. In 2017, Wall Street expects earnings of $1.95 a share, and the dividend, which has increased for 13 consecutive years, may be increased to $1.40. That would be a handsome 3.6 percent return on today’s price. The consensus is that the company will have continued earnings and dividend growth, with a $65 price target by 2020. Value Line, Susquehanna International Group, S&P Capital IQ and RBC Capital Markets have “buy” ratings on MXIM.
Verizon boring, safe, strong
Verizon Communications (VZ-$52.67) is a boring pale-blue chip telecommunications company that’s certainly less volatile than QCOM and MXIM. VZ’s revenues, earnings and dividends are not so sensitive to the economic cycle as those of QCOM and MXIM. VZ was created by the merger of Bell Atlantic and GTE in the summer of 2000, when the newly combined company traded in the mid-$50s. Revenues that year were $65 billion. Share earnings were $2.92. And the dividend was $1.54. Revenues for 2016 should come in at $127 billion, and earnings should come in at $3.95 a share. Meanwhile, the $2.31 dividend, which has been increased for 14 consecutive years, yields 4.34 percent. The Street’s five-year consensus puts the share price between $70 and $85 and predicts revenues of $139 billion, share earnings of $4.75 and a $2.60 dividend, which would yield 5.5 percent at today’s share price. Drexel Morgan, Value Line, Argus Research and Bank of America are recommending VZ. The company’s finances, rated A++ by Moody’s, are in grand shape. Long-term debt is declining, and its cash position is growing. VZ’s board of directors seems dedicated to maintaining shareholder value and should continue to raise the dividend. Though many on the Street believe that VZ has significantly above-average appreciation potential, VZ’s price may be stagnant for a couple of years. The main culprit is Yahoo. The purchase of Yahoo will combine one of the largest portfolios of exclusive internet content with an impressive distributor of internet service. That’s good. But the Yahoo schnooks who’ll come over to VZ may not be able to work effectively within the VZ culture. They couldn’t even function well under the Yahoo culture. That’s not good! Still, VZ is a dandy long-term stock. I like your broker’s picks.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.
