Artificial intelligence (AI) is a new technology with tremendous long-term investment potential. But don’t assume that all AI stocks are speculative or high-octane growth businesses. There are plenty of opportunities for dividend investors to add AI exposure to their portfolios, too.
Some companies in the best positions to lead the AI industry pay dividends. Their core businesses are enhanced by AI or even have growth opportunities. No, they aren’t high-yield stocks that income-focused investors would prefer, but their dividend growth potential makes them wealth compounders to buy and hold for the long term — including these three AI stocks.
Semiconductor giant Broadcom(NASDAQ: AVGO) specializes in chips for connectivity applications, such as networking, server storage, and broadband. And it acquired companies to build enterprise infrastructure software into about 40% of its business.
This created a diversified technology company that generated $51.5 billion in revenue in its fiscal year 2024, with $19.4 billion (37%) of that in free cash flow.
The company paid and raised its dividend for 15 consecutive years at an average hike of 14.7% over the past five years. The current payout ratio is only 48% of its fiscal year 2024 earnings, so investors should feel good about the dividend’s security and growth potential. Analysts estimate Broadcom will grow earnings by an average of nearly 22% annually over the long term, according to Yahoo! Finance.
Its promising growth expectations are mainly due to its AI-related opportunities. The company has secured deals to develop AI chips for some notable customers, which management has yet to name formally.
This year, Broadcom’s AI-related revenue totaled $12.2 billion, and management believes it will grow substantially as these chip deals get underway, making the long-term dividend potential sky-high.
Microsoft(NASDAQ: MSFT) is on a 22-year dividend growth streak. The company has become an AI business on multiple levels, integrating the technology throughout its software products to enhance the user experience.
And it owns Azure, the world’s second-largest cloud computing platform, whose growth is fueled by the AI applications it deploys.
Microsoft keeps growing despite its staggering size, reaching a $3.2 trillion market cap and $254 billion in annual revenue. Analysts estimate the business will grow earnings by a yearly average of 13% over the long term. That should spell inflation-beating dividend increases.
The dividend is also about as safe as they come. The payout ratio is only 26% of 2024 earnings estimates, and Microsoft is one of two public companies with an AAA credit rating — higher than the U.S. government.
This ironclad balance sheet gives it the utmost financial flexibility and security. Investors looking for safety and growth should look no further than Microsoft.
Social media titan Meta Platforms(NASDAQ: META) is new to the dividend game, initiating its payout this year. And it has the ingredients for dividend stardom.
Meta is arguably the world’s best advertising business, generating profits by showing digital ads to the 3.29 billion people who view Facebook, Instagram, WhatsApp, and Threads daily.
CEO Mark Zuckerberg pushed Meta hard into AI. It created an open-source AI model (Llama) and built the data centers to support its vast computing requirements. The company is also investing billions in its Reality Labs segment, which could add to its growth if it makes money at some point.
Meta’s dividend is only 9% of the company’s 2024 earnings estimates, so the growth potential is obvious. I probably wouldn’t expect overly aggressive increases as long as the company is losing money on Reality Labs, but investors have a solid shot at double-digit dividend growth.
Analysts estimate earnings will rise by an average of 17% annually over the long term, so the dividend could easily sustain high growth while keeping the payout ratio low. Meta is likely a dividend growth star in the making.
Before you buy stock in Broadcom, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Broadcom wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $839,670!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
