When you think of AI, you think of growth stocks. And when you think of growth stocks, you think of expecting never to receive a single dividend ever.
That’s a tradeoff most investors expect and are happy to take.
But what if you didn’t have to make that tradeoff?
What if you could have a stock that’s both strongly positioned to benefit from the generative AI boom AND is paying out healthy dividends as well?
That’s the subject of today’s stock pick – a company that not only has strong top-line momentum, but the cash flow generation to back it up.
Broadcom Inc. (AVGO)
Broadcom is an American semiconductor giant that has seen strong momentum from AI tailwinds, with its stock up over 40% this year. Its recent earnings report only fuelled the momentum further – showing that the company posted solid growth across almost all its segments.
The only exception was its wireless segment, which saw a decline thanks to the challenging smartphone market. But this was more than offset by double-digit growth in its networking, storage connectivity, and broadband segments.
Its networking segment, which saw a 20% year-on-year growth, – where most of the generative AI growth is concentrated in – is also Broadcom’s largest segment.
The company expects AI chips to increase from 10% of the semiconductor industry’s sales in 2022 to over 25% by next year. Those are some powerful tailwinds.
Combine this with Broadcom’s impressive cash flow generation abilities – with its free cash flow rising from $9.3 billion in 2019 to nearly $17 billion in the last fiscal year. And considering its topline revenue is about $34 billion, that means Broadcom has managed to convert almost half of topline revenue into free cash flow – a highly impressive feat.
Finally, Broadcom’s dividend yield may be low (especially considering the recent surge in its stock price) but it’s been consistent and steadily increasing. It hasn’t missed a dividend payment in 10 years. And 10 years ago, its dividend-per-share was $0.21. Today, it’s $4.60.
So, if you want to collect steady dividends from a big stock positioned to benefit from AI – you know where to look.
To your wealth,
Felix @ Ace of Investing