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.
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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