Broadcom: A Dividend Growth Machine

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The company has a history of innovation in the semiconductor industry, offering thousands of products that are utilized in end products and industries such as enterprise, data center networking, home connectivity, set-top boxes, broadband access, telecommunication, and an array of other fields.

The company has been benefiting significantly from the growing demand for semiconductors lately, producing fantastic financials.

I am particularly interested in Broadcom’s investment case because the company has a strong track record of growing dividends, with the potential for payouts to keep growing at a solid rate. Simultaneously, the stock is trading at an attractive valuation and offers an above-average yield. For this reason, I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)

Robust Financials

Broadcom’s top and bottom lines have grown at a fabulous pace over the past few years. The company features a five-year revenue CAGR (compound annual growth rate) of 19.4%.

Performance remained very strong in its latest results, as Broadcom generated revenues of $6.8 billion in Q3 2021, which signifies an increase of 16% compared to the prior year’s quarter.

Revenue growth was powered by robust demand in its Semiconductor Solutions unit, while Broadcom’s Infrastructure Software business grew impressively too.

EPS came in at $6.96, beating the analyst consensus estimate. Further, the company estimates that revenues will come in at $7.35 billion in Q4, which is again higher than the analyst consensus, and shows that growth is unlikely to slow down in the short term.

Growing Dividends

Due to its strong profitability growth, the company has been rewarding shareholders with growing dividends. Broadcom features a 10-year track record of consecutive annual dividend hikes, with increases occurring at a very pleasing rate, in line with EPS growth.

The company’s latest DPS hike was by around 11%, while the previous two hikes were by 22.6% and 51.4%.

Broadcom is expected to produce EPS of $27.98 for the year, which implies a payout ratio of 51.4% at the current annual DPS rate of $14.40.

Since the company has already declared four consecutive $3.60 quarterly dividends, it is likely that another increase will follow in December, as usual.

Broadcom is one of the best picks out there for dividend growth investors. Not only is its dividend growth substantial, but the stock yields around 2.9% at its current levels (at the $3.60 quarterly DPS rate), which is an above-average yield in the current market environment.

Wall Street’s Take

Turning to Wall Street, Broadcom has a Strong Buy consensus rating, based on 18 Buys, two Holds, and zero Sells assigned in the past three months. At $570.94, the average Broadcom price target implies 18.3% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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