Most of the attention high-flying Broadcom (NASDAQ:AVGO) stock garners is for its strong performance, which has seen it gain 116% over the past year. This impressive performance has driven its market cap to $839.1 billion, putting it on the verge of becoming one of the 10 most valuable companies in the world by market cap. At the same time, though, Broadcom is also an underrated dividend growth stock.
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With a dividend yield of just 1.1%, Broadcom certainly doesn’t jump off the page as a top dividend stock at first glance. Still, a look beyond this surface number shows that Broadcom should be on the radar of dividend and dividend growth investors alike for reasons we’ll discuss in this article.
I’m bullish on the semiconductor and software infrastructure giant based on its impressive track record as a dividend growth stock, the rate at which it is growing its dividend payment, and its long-term history of generating outstanding total returns for its investors. Additionally, while it makes little difference from a fundamental perspective, Broadcom’s upcoming 10-for-1 stock split could drive considerable momentum in the short term.
An Underrated Dividend Growth Stock
We often don’t think of high-growth tech stocks as dividend stocks, and with a dividend yield of 1.1%, Broadcom certainly doesn’t look like one that dividend investors would be clamoring for.
But don’t let this low yield obscure the fact that Broadcom is an excellent dividend growth stock. The company has paid dividends to its shareholders for 13 years in a row, and it has also increased the size of its dividend payment for 13 consecutive years.
Furthermore, Broadcom has been increasing the size of this dividend at an impressive rate. Over the past five years, the company has grown the dividend at a 17.5% compound annual growth rate (CAGR). Plus, the company is firing on all cylinders, recently reporting 43% revenue growth year-over-year during its blowout second quarter. Analysts expect Broadcom to continue to grow earnings at a rapid pace. This means that Broadcom should have ample cash coming in to grow its payout in the future.
Consensus analyst estimates call for Broadcom to earn $47.74 for Fiscal 2024, accelerating to $59.95 for 2024. Additionally, Broadcom’s payout ratio is a conservative 46.7%, so the company has plenty of room to comfortably pay and increase its dividend.
While Broadcom’s low yield may discourage some income investors, this is a top dividend growth stock. Its low yield is simply a function of the stock price soaring, a reason that most dividend investors would happily accept. When looking at Broadcom’s total returns (which combine price appreciation and reinvested dividends) over the years, the results have been phenomenal, as we’ll discuss below.
Long-Term Winner
While Broadcom’s performance over the past year has been spectacular, it’s not an outlier, as the stock has a proud history as a long-term winner that has delivered outstanding returns for its shareholders.
For example, the stock is up 110-fold since its IPO in 2009, an incredible feat. More recently, the stock has returned a spectacular 3,168% over the past 10 years on a total-return basis, which combines price appreciation and reinvested dividends. Even if an investor only invested in Broadcom five years ago, it has still returned 661.6% in that time frame. No matter what way you slice it, Broadcom has been a long-term winner.
While some investors tend to trim their long-term winners and allocate these profits into their portfolio’s laggards, it’s often wiser to stick with long-term winners like Broadcom, as these powerhouse stocks can continue to provide strong returns for years to come.
Stock Split on the Horizon
Like Nvidia, Broadcom recently announced a 10-for-1 stock split, which will take effect on July 12.
From a fundamental perspective, the split doesn’t change much, as one share of Broadcom at $1,730 is no different than 10 shares of Broadcom at $173. However, the move has clearly ignited investor excitement and given the stock another leg of momentum — the stock gained 12% on the day of the announcement. As we saw with Nvidia, Broadcom could continue to gain momentum as we head toward the split date.
Furthermore, the split will make the stock more accessible to retail investors who don’t have $1,800 to plunk down at a time to buy Broadcom or who don’t have access to fractional shares through their brokerage platforms. Lastly, because options contracts are comprised of 100 shares, the split could lead to increased options activity for Broadcom, which could drive more volume and upside.
Is Broadcom Stock a Buy, According to Analysts?
Turning to Wall Street, AVGO earns a Strong Buy consensus rating based on 21 Buys, two Holds, and zero Sell ratings assigned in the past three months. The average AVGO stock price target of $1,886.43 implies 8.8% upside potential from current levels.
A Perfect 10
Notably, Broadcom also has the distinction of receiving a “Perfect 10” rating from TipRanks’ proprietary Smart Score system, placing the stock in rare company. The Smart Score is a quantitative stock scoring system created by TipRanks. It gives stocks a score from one to 10 based on eight market key factors. A Smart Score of 8 or higher is equivalent to an Outperform rating.
Investor Takeaway
Broadcom is both a consistent long-term winner and an underrated, reliable dividend growth stock. I’m bullish on Broadcom based on the phenomenal total returns it has generated for investors over the years, as well as its consistent history of paying and growing its dividend. This track record, plus the impressive rate at which Broadcom is growing its dividend, gives me confidence that the firm will continue to pay and increase its dividend, going forward. In my view, this makes it a top dividend growth stock for years to come.
