The last time I wrote about Broadcom Inc. (AVGO), the global semiconductor manufacturer, I stated that this stock might not look like a top dividend stock, given its modest yearly dividend yield, but looks can be deceiving. The general idea hasn’t changed much since then, while the company’s prospects seem to be getting even brighter. For one, it showed a minor increase in its dividend yield, rising from 1.14% in Q2 to 1.49% in Q3 2024. Moreover, the company beat revenue estimates in the third quarter, posting $13.07 billion, resulting in a 47% increase year-over-year. Also, as traditions go, AVGO beat EPS estimates with $1.24, as it has been doing since the first quarter of 2021.
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In fact, Broadcom is not dissimilar to a clever and insightful film; the more you look at it, the more details you find that enhance your appreciation for it.
If you wish to know more about Broadcom’s dividend stature, you can read what our writer at Tipranks, Michael Byrne, had to say about the stock.
For now, though, let’s examine three key reasons why Broadcom is more than just a dividend king:
- Impressive Dividend Growth and Total Returns: Broadcom’s dividend yield might not sound like much, but hidden factors enhance its colors more brightly. The company has consistently paid dividends for 13 consecutive years, with a compound annual growth rate (CAGR) of 17.5% over the past five years. Despite what seems like a modest yield, Broadcom has delivered a total return of over 3,168% in the past decade, including price appreciation and reinvested dividends. As Michael Byrne stated, an initial investment of $10,000 in Broadcom 10 years ago would be worth approximately $221,420 today. This consistency and strong performance make Broadcom a remarkable dividend value opportunity.
- Leadership in Custom Silicon Chips and Strategic Acquisitions: Of course, if you are one of the biggest companies in the world, you probably have a few winning cards up your sleeve. In Broadcom’s case, I’m referring to its custom silicon chip manufacturing, which is tailored for specific use cases and offers significant energy savings. Some of its more-known customers include Google (GOOGL), Meta (META), and OpenAI. Additionally, in a clever move last November, AVGO acquired VMware for $69 billion and added a significant software component to its portfolio. This move has broadened Broadcom’s revenue streams and solidified its market position.
- Strong Financial Health and Growth Prospects: Broadcom is highly profitable. Its gross margins are at 64%, and operating margins are at 30.5%. The company is expected to maintain these margins due to its dominance in the silicon chip market and rigid cost-management capabilities. AVGO’s P/E ratio of 141.1 suggests premium valuation, but there’s a reason, as the company is forecasted to have long-term success. Indeed, analysts project significant earnings growth, with EPS expected to increase from $4.85 in Fiscal 2024 to $6.20 in Fiscal 2025.
Is Broadcom a Buy, Sell, or a Hold?
AVGO is considered a Strong Buy on Wall Street, based on 21 Buys and 3 Holds. The average AVGO price target is $200.33, reflecting a 19.14% upside.
Conclusion
In short, Broadcom is a long-term investment with all the attributes needed to maintain its leadership status in the semiconductor industry. It presents impressive dividend growth, trademark custom silicon chips, clever acquisitions, and strong financial health. The company’s consistent performance and growth potential justify its premium valuation, and that’s just how the market evaluates AVGO stock and foresees its long-term prospects. All we need to do is just take a closer look and see the nuances that complete the full perspective of Broadcom.
