This tech company beat analysts’ EPS estimates by $0.10 last quarter. The shares have a current dividend yield of 3.25%, paid quarterly.
Broadcom Inc. (AVGO)
From Cabot Dividend Investor
Broadcom is a global infrastructure technology leader and an industry Goliath with $24 billion in annual net revenues. It’s an icon of the technology revolution with roots that trace back over 50 years to the old AT&T/Bell Labs. The company has many category leading products in semiconductors and infrastructure software solutions.
The company essentially provides crucial equipment that enables technology to function as we know it today. It provides components that enable networks to operate together and communicate with each other, from the service provider all the way to the end-user and device.
All that may sound complicated. But there are two simple reasons for buying the stock. One, it is benefitting from the current environment as more businesses move online and into cloud-based applications. Two, it will get a huge benefit from the 5G rollout in the short and near term.
In the latest quarter, wireless revenue soared 43%, primarily because of the launch of the new Apple 5G phones, which require more filters and other networking technology. That boost should continue in the quarters ahead. Longer-term, Broadcom will see greater demand as its chips will be an enabling technology behind powerful emerging trends like the internet of things, self-driving cars, and artificial intelligence.
Analysts are expecting revenue growth of 10% and earnings growth of 17% for 2021. That’s strong growth for a stock that sells at less than 17 times forward earnings. The company is also approaching a huge technological expansion from 5G in the years ahead. Keep in mind that an investment in this stock produced a total return better than 1,900% over the last 10 years.
Then there’s the dividend. It’s a huge benefit to have a growth technology company that also pays a dividend. At the current price, AVGO pays a 3%+ yield. That’s solid, but the growth potential of the dividend is a remarkable thing.
Over the past five years, AVGO grew the payout by a staggering compound annual growth rate (CAGR) of 49%. The annual dividend grew from $1.94 in 2015 to $14.40 at the current rate. The company has room for future growth as the payout is still only about 48% in free cash flow.
Demand for products in cellular connectivity, networking, and data centers is sharply on the rise and should continue to grow for some time. Broadcom is one of the best in the business at providing the products that enable such things. More and more devices will need to connect to the internet and interact with each other as new 5G technology launches technological innovation and the digital economy to another level.
The timing seems great for AVGO, and the price is still reasonable. When the pandemic eventually fades away, 5G is likely to be a big story in the market. And Broadcom is a primary beneficiary. The stock is a great way for more conservative investors to play in the technology sandbox while getting a growing dividend.
Tom Hutchinson, Cabot Dividend Investor,cabotwealth.com, 978-745-5532, January 6, 2021