Artificial intelligence (AI) is a new technology with enormous long-term investment potential. But don’t assume that all AI stocks are speculative or high-growth businesses. There are also plenty of opportunities for dividend investors to add AI exposure to their portfolios.
Some companies best positioned to lead the AI sector are paying dividends. Their core businesses are enhanced by AI or even present growth opportunities. No, these aren’t the high-yielding stocks that income-oriented investors would prefer, but their dividend growth potential makes them wealth compound stocks to buy and hold for the long term – including these three stocks. AI.
Semiconductor giant Broadcom (NASDAQ:AVGO) specializes in chips for connectivity applications, such as networking, server storage and broadband. And it has acquired companies to integrate enterprise infrastructure software into about 40% of its business.
This created a diversified technology company that generated $51.5 billion in revenue in its 2024 fiscal year, including $19.4 billion (37%) in 2024. free cash flow.
The company has paid and increased its dividend for 15 consecutive years, with an average increase of 14.7% over the past five years. The current payout ratio represents only 48% of FY2024 earnings, so investors should feel good about the safety and growth potential of the dividend. Analysts estimate that Broadcom will grow earnings by nearly 22% annually on average over the long term, according to Yahoo! Finance.
Its promising growth prospects are mainly due to its AI-related opportunities. The company has agreements in place to develop AI chips for some notable customers, which management has not yet officially named.
This year, Broadcom’s AI-related revenues totaled $12.2 billion, and management thinks it will grow as these chip deals take off, making the long-term dividend potential exorbitant.
Microsoft (NASDAQ:MSFT) is on a 22-year dividend growth streak. The company has become a multi-layered AI company, integrating the technology into all of its software products to improve 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 continues to grow despite its staggering size, reaching a market capitalization of $3.2 trillion and annual revenue of $254 billion. Analysts estimate that the company will grow earnings by an average of 13% per year over the long term. This should translate into dividend increases outpacing inflation.
The dividend is also as safe as possible. The payout ratio represents just 26% of 2024 earnings estimates, and Microsoft is one of two public companies with an AAA credit rating, higher than that of the U.S. government.