We recently published an article about the 10 best dividend stocks of 2024.
Though Applied Materials, Inc. (NASDAQ:AMAT) ranks fifth on our list of the 10 Best Dividend Stocks of 2024, we have analyzed the stock in detail.
We are nearly halfway through the year, and the stock market is showing consistent signs of improvement. The S&P 500 has surged by 12.2% this year so far, with its 12-month return coming in at nearly 27%, as of the close of May 21. However, dividend stocks are still not keeping up with the broader market, with the S&P 500 Dividend Aristocrats Index returning just 3.85% since the start of 2024. Last year also didn’t go well for these equities as tech stocks rose to fame. That said, the tech stocks that drove the market rally, have decided to enhance their shareholder return by initiating dividend policies this year. This could have an impact on the performance of dividend stocks and the overall market. David Harrell, an editor of the Morningstar Dividend Investor newsletter, made the following comment in this regard:
“The inclusion of the big names [Meta, Alphabet] in any sort of dividend indexes or dividend growth indexes is very likely to increase their correlation with the broad market.”
While dividend stocks lagged behind the market last year, their long-term performance suggests otherwise. Dividend equities represented an average of 34% of the market’s overall return from 1940 to 2023. Not only this, these stocks showed resilience and demonstrated strong performance in comparison to other asset classes during periods of high inflation. In our article titled 25 Things Every Dividend Investor Should Know, we cited data from Hartford Funds and mentioned that during eight inflationary periods between 1970 and 2022, dividend stocks outperformed their non-dividend counterparts. Specifically during the 1970s, a decade marked by high inflation, dividends accounted for nearly 73% of the S&P 500’s total return.
In addition to this, the dividend growth rate has also surpassed inflation over the years. According to data from Yale University’s Robert Shiller, dividends per share have grown 1.6 percentage points faster annually than inflation since 1871. This growth advantage has increased in recent decades as over the past 50 years, dividends have surpassed inflation by 2.5 percentage points annually, and in the last two decades, by 4.6 annualized percentage points. This ability of dividends to outpace inflation makes them a more attractive investment for long-term investors. Therefore, analysts suggest that investors should not be concerned about dividend stocks underperforming the broader market in the short term.
Another factor attracting investors to dividend stocks is the increasing amount of dividends US companies have paid over the years. According to recent data from S&P Dow Jones Indices, the S&P 500 companies paid $151.6 billion in dividends in the first quarter of 2024, up from $146.8 billion during the same period last year. The report also mentioned that 796 companies announced dividend hikes during the quarter, amounting to $22.7 billion, growing from $19.7 billion in the prior-year period. This indicates that dividend payments are on the right track this year. Analysts have also given a positive outlook for dividend stocks in 2024. We also published an article on Jim Cramer’s Latest Stock Picks in May 2024.
Image by Sergei Tokmakov Terms.Law from Pixabay
Applied Materials, Inc. (NASDAQ:AMAT)
Applied Materials, Inc. (NASDAQ:AMAT) is an American multinational company that specializes in specific software that is used in the manufacturing of semiconductors. In addition to this, the company offers related services and products to businesses and individuals.
2023 was the year of artificial intelligence (AI) as many industries embraced AI solutions for their operations. Applied Materials, Inc. (NASDAQ:AMAT) also stands to gain advantages from AI due to its potential to develop AI chips, a segment where the company is already experiencing strong demand. Gary Dickerson, President and CEO, made the following comment in this regard in the company’s latest earnings report:
“Applied Materials has the most enabling portfolio of materials engineering technologies for chips that underpin tectonic shifts in technology including AI, IoT, electric vehicles and clean energy, which puts us in a great position to grow along with these long-term, secular trends.”
In its fiscal Q2 2024, Applied Materials, Inc. (NASDAQ:AMAT) reported revenue of $6.6 billion, which remained unchanged from the same period last year. However, the revenue beat analysts’ estimates by $110 million. Its net income for the period jumped by 9% year-over-year to $1.7 billion.
Examining the company’s cash position in relation to its dividend strategy revealed that it holds a sufficient amount of cash on its balance sheet. In the most recent quarter, Applied Materials, Inc. (NASDAQ:AMAT) generated nearly $1.4 billion in operating cash flow and its free cash flow came in at over $1.1 billion. During the quarter, the company returned $1.09 billion to shareholders, including $266 million in dividends. In addition to this, Applied Materials, Inc. (NASDAQ:AMAT) ended the quarter with over $7 billion available in cash and cash equivalents.
Many tech companies have joined the dividend club this year, however, Applied Materials, Inc. (NASDAQ:AMAT) has been making regular dividend payments to shareholders since 2005. Prior to this, the company has intermittently issued dividends since 1980. In March this year, Applied Materials, Inc. (NASDAQ:AMAT) declared a 25% hike in its quarterly dividend to $0.40 per share, which represented its seventh consecutive annual dividend hike. Despite its strong dividend history, the stock’s dividend yield comes up short when compared with other tech stocks like Broadcom Inc. (NASDAQ:AVGO). As of May 21, the stock has a dividend yield of 0.73%, which is also lower than the S&P 500’s dividend yield. With a trailing twelve-month P/E ratio of 25.06, AMAT is currently fairly valued. To learn more about value plays, have a look at 10 Undervalued Stocks with Latest Insider Purchases. While Applied Materials, Inc. (NASDAQ:AMAT) shows a strong financial position, it ranks fifth on our list of the best dividend stocks of 2024. We have also covered Steve Cohen’s best AI picks in 10 Best AI Stock Picks of Billionaire Steve Cohen.
Applied Materials, Inc. (NASDAQ:AMAT) ranks 5th on our list of the best dividend stocks. Click to see the 10 Best Dividend Stocks of 2024.
If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
