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 companies. There are also plenty of opportunities for dividend investors to add AI exposure to their portfolios.
Some companies that are best positioned to lead the AI industry are paying dividends. Their core activities are strengthened by AI or even have growth opportunities. No, they’re not high-yield stocks that income-oriented investors prefer, but their dividend growth potential makes them wealth builders to buy and hold for the long term — including these three AI stocks.
Semiconductor giant Broadcom(NASDAQ:AVGO) specializes in chips for connectivity applications, such as networking, server storage and broadband. And it acquired companies to build enterprise infrastructure software into about 40% of its operations.
This created a diversified technology company that generated $51.5 billion in revenue in fiscal 2024, including $19.4 billion (37%) in 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 is just 48% of fiscal 2024 earnings, so investors should feel good about the security and growth potential of the dividend. Analysts estimate that Broadcom will grow earnings by an average of nearly 22% per year over the long term, according to Yahoo! Finances.
The promising growth expectations are mainly due to the AI-related capabilities. The company has inked deals to develop AI chips for a number of notable customers, which management has yet to formally name.
This year, Broadcom’s AI-related revenue totaled $12.2 billion, and management believes it will grow substantially as these chip deals take off, making its long-term dividend potential sky-high.
Microsoft(NASDAQ: MSFT) is on a 22-year dividend growth streak. The company has become an AI company on multiple levels, integrating the technology into all its software products to improve the user experience.
And it owns Azure, the world’s second-largest cloud computing platform, whose growth is driven 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 in the long term. That should mean inflation-reducing dividend increases.
The dividend is also about as safe as it gets. Its payout ratio is just 26% of 2024 earnings expectations, and Microsoft is one of two publicly traded companies with a AAA credit rating – higher than that of the US government.
This rock-solid balance sheet gives it the greatest possible financial flexibility and security. Investors looking for security and growth need look no further than Microsoft.
Titan on social media Metaplatforms(NASDAQ: META) is new to the dividend game and will begin paying out this year. And it has the makings of dividend stardom.
Meta is perhaps the best advertising company in the world, generating profits by serving digital ads to the 3.29 billion people who view Facebook, Instagram, WhatsApp and Threads every day.
CEO Mark Zuckerberg pushed Meta hard into AI. It created an open-source AI model (Llama) and built the data centers to support its massive computing needs. The company is also investing billions in its Reality Labs segment, which could help fuel growth if it makes money at some point.
Meta’s dividend is just 9% of the company’s 2024 earnings expectations, so the growth potential is obvious. I probably wouldn’t expect overly aggressive increases as long as the company is losing money on Reality Labs, but investors have a good shot at double-digit dividend growth.
Analysts estimate that long-term earnings will grow by an average of 17% per year, making it easy for the dividend to maintain high growth while keeping the payout ratio low. Meta is probably a dividend grower in the making.
Consider the following before buying shares in Broadcom:
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Meta Platforms and Microsoft. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Dividend Growth Stocks to Buy and Hold for the Long Term was originally published by The Motley Fool
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