We recently compiled a list of the 14 Best Large Cap Dividend Growth Stocks To Buy Now. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other large cap dividend growth stocks.
Investors continue to favor large-cap stocks, as these companies often serve as the foundation of popular index funds and are well-known among both seasoned professionals and casual traders. Moreover, large-cap firms have demonstrated their ability to withstand economic uncertainty, thanks to their strong market presence and substantial cash reserves, which help them weather financial downturns with relative ease. For the second consecutive year in 2024, US large-cap stocks outpaced cash, bonds, and international equities, securing the top spot in market performance.
Also read: 12 Best International Dividend Stocks To Buy Now
A Morningstar report revealed that over the 10-year period ending June 30, 2024, large-cap stocks have outperformed small-cap stocks by an average of more than 6 percentage points annually. This disparity stems from differences in sector exposure—small-cap benchmarks have a lower concentration of technology stocks and a greater presence in traditional industries like consumer cyclicals, financials, real estate, and industrials. Although economic growth has been robust, these sectors have struggled to match the pace set by technology-related stocks.
In addition, according to JPMorgan Wealth Management, large-cap stocks play a key role in driving long-term capital appreciation for investors. Over the 10-year period from 2013 to March 2023, large-cap stocks delivered a total return of 162%, outperforming mid-cap and small-cap stocks, which posted returns of 139% and 108%, respectively.
Large-cap stocks demonstrate their resilience through their ability to increase dividends even in times of market distress. Several leading companies have maintained decades-long streaks of dividend growth, weathering major economic crises such as the 2008 recession and the 2020 pandemic. A report by T. Rowe Price highlighted that large-cap firms with a track record of consistent dividend increases have shown relative strength during downturns, suffering smaller losses than the broader market. In addition, these companies have often outperformed during periods of market stagnation and have participated in a substantial share of gains during bull markets.
Dividend growth is a key factor when evaluating dividend stocks, as companies that consistently raise their payouts have historically outperformed those that do not. A report by RMB Capital found that between 1972 and 2018, companies that initiated or grew their dividends achieved an average annual return of 9.62%, significantly surpassing the 2.40% return of non-dividend-paying firms. Even the broader market, with a 7.30% return, lagged behind dividend growers. The report also emphasized that companies with a strong history of dividend increases have not only sustained but expanded their payouts, even during economic downturns. From a portfolio perspective, dividend growth stocks provide solid diversification, as they are spread across multiple industries. This offers an advantage over high-yield portfolios, which tend to be concentrated in mature sectors like utilities and, prior to 2007, financials.
Analysts recommend incorporating dividend stocks into income portfolios, especially as several major tech companies have adopted dividend policies this year. With robust cash flows, these firms are well-positioned to maintain and expand their dividend payouts over time. Given this, we will take a look at some of the best large-cap dividend growth stocks.
Our Methodology:
For this list, we first used a stock screener to identify large-cap dividend stocks with market capitalization above $10 billion. From that list, we shortlisted stocks that have 5-year average dividend growth rates of above 10%. The stocks are ranked in ascending order of their dividend growth rates.
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A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO)
5-Year Average Annual Dividend Growth Rate: 14.14%
Broadcom Inc. (NASDAQ:AVGO) is a California-based semiconductor company that offers a wide range of semiconductor and infrastructure software products. In the fourth quarter of 2024, the company reported revenue of $14.05 billion, a remarkable 51% increase from the previous year. Semiconductor revenue hit a record $30.1 billion, with AI revenue soaring 220% year-over-year to $12.2 billion. This strong growth was driven by the company’s advanced AI XPUs and Ethernet networking solutions. For the full fiscal year 2024, adjusted EBITDA rose 37% year-over-year, reaching a record $31.9 billion.
Broadcom Inc. (NASDAQ:AVGO) is drawing considerable investor attention due to its essential role in powering products across multiple industries, such as data centers and smartphones. Its technology manages over 99% of internet traffic, underscoring its dominance in networking. In addition, the company’s acquisition of VMware, a cloud virtualization firm, a year ago has bolstered its market position. VMware’s operating margin has increased to 70%, and the company is on track to surpass its goal of generating over $8.5 billion in adjusted EBITDA within three years.
Broadcom Inc. (NASDAQ:AVGO), one of the best dividend stocks, currently offers a quarterly dividend of $0.59 per share and has a dividend yield of 1.00%, as of February 12. The company has increased its payouts for 14 straight years. This impressive dividend growth is driven by the company’s strong cash position. In the most recent quarter, Broadcom generated $5.6 billion in operating cash flow and $5.48 billion in free cash flow, accounting for 39% of its total revenue.
Overall AVGO ranks 8th on our list of the best large cap dividend growth stocks to buy. While we acknowledge the potential for AVGO as an investment, 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 AVGO 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.
