Broadcom (NASDAQ:AVGO) checks many of the boxes you would want to see in a long-term growth stock. The company has outperformed the market with a 411% gain over the past five years while maintaining a 1.6% dividend yield. Broadcom regularly grows its dividend by at least 10% each year, makes strategic acquisitions, and is capitalizing on the artificial intelligence boom. I am bullish on the stock due to those factors.
The Next Trillion Dollar Company?
Broadcom currently trades at a $611 billion market cap and looks more deserving of the Magnificent Seven designation than Tesla (NASDAQ:TSLA). Broadcom is currently the eighth-largest corporation in the S&P 500 (SPX) since Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has Class A and Class C shares (or else it would be the eighth-largest).
The semiconductor giant’s pursuit of the $1 trillion milestone can attract more investors for gains and the chance to own the stock before it reaches that milestone. The stock’s 18% year-to-date gain and 115% gain over the past year indicate that momentum is on Broadcom’s side.
Continued growth in the artificial intelligence industry can also assist the stock. Analysts are once again grouping Broadcom and Nvidia (NASDAQ:NVDA) together as two of the top AI chipmakers. While Nvidia has a comfortable lead over everyone else, the industry is large enough for multiple winners to emerge. Broadcom’s artificial intelligence event has also excited investors.
Broadcom’s ascent will give it more weight in the S&P 500 and the Nasdaq 100 (NDX). More weight in those indices will translate into more gains for the stock.
The Ideal Retirement Stock
Broadcom is soaring, but unlike most growth stocks, the tech giant offers a respectable dividend yield. The 1.6% yield also comes with an impressive dividend history. The company recently hiked its quarterly dividend from $4.60 per share to $5.25 per share, a 14.1% year-over-year increase.
The company has roughly doubled its dividend since 2019, raising it from $2.65 to $5.25 in 2023. Broadcom will probably raise its dividend again near the end of 2024. A 10% increase would bring the company’s quarterly dividend to $5.78 per share, but it’s likely that the company will hike it by a higher percentage.
You don’t have to pick a stock that stays flat and offers a decent yield. Broadcom offers cash flow right now, plus the opportunity for significant dividend growth if investors expand their time horizons to five to 10 years. Your effective yield during that time will likely look very different from the yield new investors will receive five-10 years from now.
Notably, Broadcom also reinvests its capital into stock buybacks. The company repurchased 7.7 million shares in the first quarter of Fiscal 2024 for $8.29 billion.
Revenue Growth Is Accelerating
Broadcom’s revenue increased by 34% year-over-year in the first quarter of Fiscal 2024. The VMware acquisition played a significant role in the company’s strong revenue report. Broadcom’s leadership believes the firm can reach $50 billion in Fiscal 2024 revenue. Hock Tan, President and CEO of Broadcom, cited VMware and artificial intelligence as key drivers for the company.
“First, our acquisition of VMware is accelerating revenue growth in our infrastructure software segment as customers deploy VMware Cloud Foundation. Second, strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment,” stated Tan in the press release.
Broadcom’s net income was down year-over-year due to acquisition costs and other factors, but the company normally posts net profit margins above 35%. Net income on a non-GAAP basis (excludes acquisition costs and a few other expenses like stock-based compensation) reached $5.25 billion, which was 17.2% higher than the same period last year.
Is AVGO Stock a Buy, According to Analysts?
Analysts are bullish on AVGO stock and have rated the stock as a Strong Buy. The company has 19 Buy ratings and three Hold ratings. None of the analysts rated the stock as a Sell. The average AVGO stock price target of $1,576.95 implies 19.6% upside, and even the lowest price target suggests that the stock has more room to run. The highest price target of $1,720 per share demonstrates that the stock can potentially rise by an additional 30% from current levels.
The Bottom Line on Broadcom Stock
Broadcom is a buy-and-hold-type stock that has a lot of catalysts lined up. The semiconductor and software company dominated its industry before artificial intelligence became mainstream. Further, the company has a history of reporting impressive profit margins and financial growth. Dividend investors can also appreciate this stock due to its respectable yield for a growth stock and its commitment to raising the dividend.
Many analysts believe the stock has more room to run, with all of them setting price targets higher than the current price. The company’s deeper involvement in the artificial intelligence industry can be the next catalyst for future growth. Overall, Broadcom is a compelling long-term stock.
