We recently analyzed the best dividend stocks of 2024.
Though Broadcom Inc. (NASDAQ:AVGO) ranks eighth 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. Even though the Dow Jones Industrial Average (DJIA) rose only 3.7% so far this year, its broader partner has surged by 11.1% this year so far, with its 12-month return coming in at nearly 26%, as of the close of May 23. However, dividend stocks are still not keeping up with the broader market, with the 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, 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.
Veteran dividend investor Warren Buffett’s portfolio can be a good start for our readers to understand dividend investing. Read Warren Buffett’s 8 Best Dividend Stock Picks.
Photo by Dan Dennis on Unsplash
Broadcom Inc. (NASDAQ:AVGO)
Broadcom Inc. (NASDAQ:AVGO) is a California-based semiconductor manufacturing company that specializes in a wide range of infrastructure software solutions. The company invests heavily in research and development to drive innovation in its software solutions.
For dividend-paying companies, strong cash flow is particularly important as it ensures that there is ample money to fund its dividends. Broadcom Inc. (NASDAQ:AVGO)’s cash position remained strong in the first quarter of 2024. The company reported an operating cash flow of over $4.8 billion and its free cash flow (FCF) came in at $4.7 billion. The FCF represented 39% of its revenue. During the quarter, the company returned approximately $2.5 billion to shareholders through dividends. In the first quarter, the company generated revenue of roughly $12 billion, which showed a 34% growth from the same period last year.
While many tech companies distribute dividends, only a handful have a long-standing record of providing strong returns to shareholders. Broadcom Inc. (NASDAQ:AVGO) stands out with a solid track record of dividend payments. The company started paying dividends in 2011 and has raised its payouts every year since then. Over these years, its annual dividend has grown from $0.36 per share to $21.00 per share. In comparison, other tech companies like Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) pay relatively small amounts in dividends, with yields significantly lower than AVGO. In the past five years, the company has raised its dividends at an annual average rate of 17.49%. It currently offers a quarterly dividend of $5.25 per share and has a dividend yield of 1.51%, as recorded on May 20.
Broadcom Inc. (NASDAQ:AVGO) shares are up by 30.2% this year so far, as of the close of May 20, outperforming the S&P 500, which returned 11.9% year-to-date. The stock has also surpassed the broader market’s performance over a 5-year period, returning 448.7%, compared to the market’s 87.8% return during this period.
Broadcom Inc. has been a huge beneficiary of the booming AI infrastructure spending incurred by mega-cap companies like Microsoft, Google, Meta, and Amazon. AVGO’s trailing twelve-month P/E ratio of 52.2 raised concerns about its potential overvaluation. However, with sustained growth and profitability, the current valuation may be justified. In its recent earnings report, the President and CEO of the company announced that they expect to generate consolidated revenue of $50 billion in FY24, mainly driven by advancements in AI. If you are looking for an AI stock that is more promising than Broadcom but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Broadcom Inc. (NASDAQ:AVGO) ranks eighth on our list of the best dividend stocks. Click to see the 10 Best Dividend Stocks of 2024.
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Disclosure: None. This article is originally published at Insider Monkey.
