Artificial intelligence has been a hot market throughout 2024. AI fueled the surge in share price for companies such as Nvidia, which saw its stock rise nearly 180% over the past year through Dec. 31.
The AI market’s growth isn’t slowing down any time soon. Forecasts estimate the industry will expand at a phenomenal rate, from $184 billion in 2024 to over $826 billion by 2030.
A great way to capitalize on the AI boom is to invest in companies that are not only involved in artificial intelligence, but also pay a robust, dependable dividend. That said, not all dividend-paying AI stocks are equal. For instance, Nvidia offers a dividend, but its dividend yield is a paltry 0.03% as of this writing.
So where are the AI companies with great dividends? Three of them are International Business Machines(NYSE: IBM), Cisco Systems(NASDAQ: CSCO), and Verizon Communications(NYSE: VZ). Here’s a deeper look into each.
IBM offers many reasons to invest in its stock. Shareholders get an impressive dividend yield of 3% , and payments are as reliable as you can hope to see. The company has paid quarterly dividends continuously since 1916 and has increased payments for the past 29 years.
IBM smartly switched its focus to cloud computing and AI in 2020. After AI demand took off in 2023, IBM has enjoyed rising revenue.
IBM’s third-quarter sales related to generative AI rose by over $1 billion from the second quarter. This performance demonstrates strong demand for Big Blue’s AI offerings.
The company’s future looks bright as well. IBM is working on quantum computing, which uses subatomic particles to perform calculations at unimaginable speeds on the world’s most powerful supercomputers. If Big Blue can successfully scale up its quantum capabilities, it could deliver more advanced AI than any available today.
Cisco made its name in computer networking, and that discipline is more essential than ever in the AI era. AI systems need the computing power of many computers networked together to crunch the mountains of data required for AI to function. And to deploy that AI to customers requires resilient, dependable, and secure internet networks.
These are all areas Cisco is known for, and it contributed to the 20% year-over-year rise in the company’s product orders in its fiscal first quarter, ended Oct. 26. This strong start to its fiscal year led the company to forecast its 2025 revenue to come in between $55.3 billion and $56.3 billion, up from 2024’s $53.8 billion.
CEO Chuck Robbins sees AI powering Cisco’s sales growth. He noted that businesses are investing in IT infrastructure to support the demands of AI systems. As a result, the company is integrating its Cisco Silicon One platform into all of its products. Silicon One is the company’s custom semiconductor chip designed to deliver superior speed and efficiency to support AI.
In addition, the stock offers a dividend with a yield of nearly 3%. Cisco has raised its dividend consistently for over a decade.
Verizon’s involvement in AI is related to edge computing, which entails bringing AI to your devices, whether that be your mobile phone, laptop, or internet-enabled car. These devices are on the periphery, or edge, of a computer network, hence the name.
To implement edge computing requires a wireless network robust enough to handle a large data load with speed and security. That’s where Verizon’s 5G network comes in. The telecom partnered with Nvidia specifically to enable the use of AI on its network.
This capability is coming in 2025, but Verizon’s wireless service is already experiencing success. In Q3, its wireless service business saw sales rise 3% year over year to $19.8 billion. This division contributed the bulk of the telecom’s Q3 revenue of $33.3 billion.
Verizon is a great dividend stock as well. Because nearly everyone has a cell phone these days, the company can reliably generate substantial free cash flow (FCF) to fund its dividend. Through the first three quarters of 2024, the company produced $14.5 billion in FCF, nearly the same as 2023’s $14.6 billion, which illustrates its FCF consistency.
Because of its strong FCF, Verizon has raised dividend payments for 18 consecutive years. In addition, its dividend yield is nearly a whopping 7% as of this writing.
With the AI market’s growth delivering a tailwind to IBM, Cisco, and Verizon, combined with their outsize dividend yields, these companies are a great way to see a return on your AI investment. And you can collect passive income as the AI market grows over time.
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Robert Izquierdo has positions in Cisco Systems, International Business Machines, Nvidia, and Verizon Communications. The Motley Fool has positions in and recommends Cisco Systems and Nvidia. The Motley Fool recommends International Business Machines and Verizon Communications. The Motley Fool has a disclosure policy.
