We recently published a list of 15 Best NASDAQ Dividend Stocks To Buy. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against other best NASDAQ dividend stocks to buy.
The NASDAQ, heavily comprised of technology stocks, has been on a consistent upward trajectory for some years. In 2023, it experienced remarkable growth, marking its best performance since 2020 with an increase of over 43%. In 2024, the index continued to surpass market expectations with a 28.64% gain. This impressive performance is largely driven by the excitement surrounding artificial intelligence, which has significantly boosted major tech stocks and the broader market throughout 2023 and into this year. Analysts suggest that the NASDAQ could be the index of the future, as its companies have shown a strong ability to adapt to evolving market trends.
NASDAQ’s consistent outperformance can be observed over several years. According to a report by Invesco, since January 1, 2008, the Nasdaq-100 Index has delivered a cumulative total return of 750%, significantly outpacing the broader market’s 315% return. This success is largely attributed to the innovation driven by tech companies, which continues to attract investors. For instance, the technology sector in the broader market has achieved an annualized total return of 20.65% over the past decade, compared to 12.80% for the market. This leadership is understandable given the rapid adoption of technology in recent years. The Industry Classification Benchmark (ICB) noted that the Nasdaq-100 has approximately 55% exposure to the tech sector, in contrast to about 32% for the broader market.
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Tech companies are not only driving innovation but are also swiftly adjusting their dividend strategies. In 2024, many prominent tech firms began issuing dividends, significantly boosting the overall dividend pool. Although dividends are traditionally linked with value stocks rather than the high-growth companies fueling the AI surge, analysts suggest this shift broadens the appeal of these stocks to new investor groups while putting surplus cash to use. Typically, growth-focused companies prioritize reinvestment over returning earnings to shareholders. However, experts like Ted Mortonson from Baird argue that these dividend payments won’t undermine the companies’ future dominance. Here are some other comments from the analyst:
“I don’t view it as a problem. I view it as they’ve won. They’ve won the technology side. They’ve won on the business-model side, and they’re going to win on the Gen AI cycle.”
Overall dividends are becoming increasingly popular among investors, with many US companies either raising or maintaining their payouts. Howard Silverblatt, a Senior Index Analyst at S&P Dow Jones Indices, suggested that with an anticipated reduction in interest rates by the FOMC in 2025, coupled with record earnings forecasted for the fourth quarter of 2024 and the entire year of 2025, companies might allocate more funds towards substantial dividend hikes in the upcoming year. He further mentioned that February, traditionally the peak month for dividend increases, is expected to see even more significant growth as some firms may look to compensate for previous conservative strategies. In 2024, the large-cap companies in the broader market outperformed many others, achieving record levels in earnings, sales, and dividends. For 2025, a projected 8% rise in dividend payments is expected, up from a 6.4% increase in 2024.
Our Methodology
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024 and selected companies that are trading on the NASDAQ exchange and also pay dividends to shareholders. From that list, we picked 15 stocks with the highest number of hedge fund investors and ranked in ascending order of hedge funds’ sentiment toward them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A technician in a clean room assembling a semiconductor chip using a microscope.
Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 74
Applied Materials, Inc. (NASDAQ:AMAT) is a global leader in semiconductor equipment manufacturing, supplying critical tools for creating advanced chips used in AI, data centers, automotive technology, and other sectors. The global semiconductor manufacturing equipment market is projected to more than double by 2032, with Applied Materials likely to be a major beneficiary of this growth. Beyond just selling its equipment, the company has seen a significant boost in revenue from its equipment servicing segment. As manufacturing equipment becomes more complex and specialized, the demand for expert maintenance continues to rise, contributing to this fast-growing part of the business. In the past 12 months, the stock has surged by over 16%.
In the fourth quarter of 2024, Applied Materials, Inc. (NASDAQ:AMAT) reported revenue of $7.05 billion, which showed a 5% growth from the same period last year. The company’s net income for the quarter came in at $1.73 billion. Its diverse range of products and services strategically positions the company to support its customers in advancing AI and energy-efficient computing. As these critical areas of semiconductor innovation gain prominence, the industry’s progress increasingly relies on materials engineering, a field where Applied Materials holds a leading position.
Applied Materials, Inc. (NASDAQ:AMAT) also showed a strong cash position in FY24. The company reported an operating cash flow of $8.68 billion during the year. Its free cash flow amounted to $7.5 billion. Moreover, the company returned approximately $5.01 billion to shareholders, including $1.19 billion in dividends. It is one of the best dividend stocks on our list as the company has been growing its payouts for seven consecutive years. Currently, it offers a quarterly dividend of $0.40 per share and has a dividend yield of 0.89%, as of January 15.
Vltava Fund highlighted Applied Materials, Inc. (NASDAQ:AMAT) in its recently published Q4 2024 investor letter. Here is what the firm has to say:
“In the quarter just ended, we added to the portfolio two new companies from the technology sector: Applied Materials, Inc. (NASDAQ:AMAT) and Lam Research. Both are in the same industry as is another of our investments that we have held for some time, KLA Corporation. This industry is termed semiconductor devices and materials. One chapter in Hidden Investment Treasures is devoted to investing in technology companies and, among other things, the controversy over what really constitutes a technology company. As investors, we try to view technology companies not according to the industry into which they are formally classified but by whether the technologies and technological processes used in the production of their products and services are an essential element in value creation or if they are a source of long-term, sustainable competitive advantage. Among the companies that are formally categorized as technology-based and fall into either the Information Technology or the Communications Services sector, we find some that can be said to be just that but also others for which this classification is at least debatable. Similarly, among companies that do not formally belong to these two sectors, we find many that clearly are built to a large extent on technology and base their market positions and competitiveness on it. In the cases of Applied Materials and Lam Research, there can be no doubt that these are technology companies not only as a formality but also in fact.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 74 funds held stakes in Applied Materials, Inc. (NASDAQ:AMAT), compared with 77 in the previous quarter. The consolidated value of these stakes is over $4.6 billion.
Overall, AMAT ranks 6th on our list of best NASDAQ dividend stocks to buy. While we acknowledge the potential for AMAT to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.