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In a recent assessment of leading dividend-paying stocks, we aim to analyze the position of Broadcom Inc. (NASDAQ: AVGO) amongst top performers in this category, following the publication of a list highlighting the 11 Best Dividend Paying Stocks According to Hedge Funds.
Dividend-paying stocks have gained significant traction among investors, mainly because they offer ongoing value over time. Historical data indicates that an investment of $10,000 in a broad market index from 1960 to 2024 would have appreciated to over $982,000, based solely on stock price increases. However, when factoring in re-invested dividends, that figure rises dramatically to about $6.42 million by early 2025, according to research from FactSet and NYU Stern. This illustrates the profound impact that dividends can have on long-term investment returns.
Given the current economic climate, where cash flow is pivotal, many investors are gravitating towards income-generating assets. This trend is reflected in the increasing number of companies initiating or enhancing dividend payments. Recent reports from S&P Global reveal that firms within the S&P index account for approximately 85% of total dividends, an increase from 82% in the prior year. Furthermore, 2.7% of this dividend pool now stems from companies that have only recently started distributing dividends.
The top 29 firms in the S&P index represent a considerable portion of total dividends, contributing to 40% of the dividends paid by index constituents and 35% of the US equity market’s total. Current predictions suggest these companies could distribute around $280 billion in dividends, with potential growth scenarios suggesting an increase of up to 4.5%. This highlights the robust earnings and cash flows that these corporations are experiencing.
Dividends are increasingly becoming a focal point in investment strategies. Brian Bollinger, founder of Simply Safe Dividends, emphasizes that companies with a consistent record of paying dividends provide investors with reassurance. This strategy is particularly appealing to younger investors who can construct long-term portfolios aimed at maximizing both income and capital appreciation.
According to Nuveen, companies that prioritize dividend growth tend to possess strong fundamentals and have historically outperformed the broader equity market. These firms have shown they can deliver higher returns with less volatility, making them a reliable choice for building equity portfolios.
Nuveen also highlighted that many U.S. companies are well-poised to continue increasing their dividends, supported by solid corporate balance sheets and stable consumer spending. Notably, dividends per share in the S&P index rose by 7.6% in the last year, with forecasts estimating an additional 4.2% increase in the forthcoming year. This sets the stage for a closer examination of some of the top dividend stocks favored by hedge funds.
Is Broadcom Inc. (AVGO) the Best Dividend Paying Stock According to Hedge Funds?
Our Methodology:
This analysis utilizes data from Insider Monkey’s extensive database of over 1,000 hedge funds, as of the end of Q4 2024. We identified 11 dividend stocks, each with yields of at least 1%, showcasing strong financial performance and a consistent history of dividend payments. The rankings are based on the number of hedge funds holding stakes in these firms.
The interest in hedge fund favorites lies in the potential for significant outperformance. Our research indicates that by following the leading stock picks of top hedge funds, investors can achieve superior market returns. Since May 2014, our quarterly newsletter strategy, which involves selecting small-cap and large-cap stocks, has returned an impressive 373.4%, outperforming its benchmark by 218 percentage points.
Number of Hedge Fund Holders: 161
Broadcom Inc. (NASDAQ: AVGO), a key player in the semiconductor sector, has recently faced challenges due to heightened tariff rates on imports from China. Despite this setback, the stock has experienced recovery momentum, climbing as part of a broader market resurgence. Nonetheless, Broadcom shares are still down approximately 22% year-to-date, trading at around 27 times projected earnings for 2025.
In its fiscal Q1 2025 report, Broadcom announced revenues of $14.9 billion, marking a 24.7% increase compared to the same quarter last year and exceeding analyst projections by $325.2 million. This growth is attributed in part to heightened demand for AI-related products and infrastructure software, with AI sales surging 77% year-over-year to $4.1 billion.
Financially, Broadcom remains robust, reporting over $6.1 billion in operating cash flow and more than $6 billion in free cash flow, which constitutes roughly 40% of its total revenues. During the quarter, the company returned $2.77 billion to shareholders through dividends, currently maintaining a quarterly dividend of $0.59 per share, translating to a dividend yield of 1.30% as of April 12.
In summary, Broadcom Inc. ranks 1st among the best dividend-paying stocks favored by hedge funds. While the potential in AVGO as an investment is evident, it is worth considering that there may be other undervalued dividend stocks offering promising returns in a shorter timeframe. For those seeking a compelling dividend stock option, we recommend exploring our report on a dirt cheap dividend stock that presents substantial growth prospects.
For further reading, you may explore: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
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finance.yahoo.com