3 AI Dividend Growth Stocks Worth Holding Long-Term

For investors seeking a blend of capital appreciation and passive income, numerous impressive dividend-paying AI stocks are emerging. These investments allow shareholders to benefit from the rapid growth of artificial intelligence while still enjoying regular dividend payouts.

Despite its reputation for being volatile, the AI sector holds substantial long-term investment potential. Investors should know that not all AI stocks fit the mold of speculative firms. In fact, several established companies are integrating AI into their operations and are also committed to paying dividends.

The companies highlighted below demonstrate significant potential for growth while providing shareholders with dividends that promise to increase over time. While high yield may not be their primary attribute, their ability to grow dividends makes these stocks excellent long-term holdings. Here are three AI-focused dividend growth stocks that investors should consider.

1. Broadcom

A leader in the semiconductor industry, Broadcom (AVGO) specializes in producing chips primarily for connectivity applications in networking, server storage, and broadband. The company has also strategically acquired businesses that allow it to enhance its enterprise infrastructure software offerings, with these software ventures contributing to about 40% of its operations.

In its fiscal year 2024, Broadcom generated a staggering $51.5 billion in revenue, with an impressive $19.4 billion, or 37%, of that amount classified as free cash flow. Notably, the company has consistently paid dividends and has increased them for 15 consecutive years, achieving an average annual raise of 14.7% over the past five years. Currently, the payout ratio stands at a comfortable 48% of its projected fiscal year 2024 earnings, suggesting that the dividend is both secure and has the potential for future growth.

Analysts project that Broadcom’s earnings will increase at an average rate of nearly 22% annually, largely due to its burgeoning AI opportunities. The company has secured several contracts to develop AI chips for major clients, significantly boosting its revenue expectations in this field.

2. Microsoft

Microsoft (MSFT) boasts an impressive 22-year streak of increasing dividends, showcasing its commitment to returning profits to shareholders. The technology giant has embraced AI across its software products, improving user experiences and functionalities.

Microsoft also manages Azure, the second-largest cloud computing platform globally, which is expanding rapidly due to various AI applications. The company's financial performance is robust, with a market capitalization of $3.2 trillion and annual revenues reaching $254 billion. Analysts predict an average earnings growth rate of 13% annually, which should support dividend increases that outpace inflation.

With a payout ratio of only 26% of the anticipated earnings for 2024, the safety of the dividend is reinforced. Microsoft’s credit rating is among the highest available, further underpinning its financial stability and flexibility. This makes it an ideal option for investors seeking both safety and growth.

3. Meta Platforms

Another key player is Meta Platforms (META), which has initiated its dividend payout this year. Despite being relatively new to the dividend landscape, Meta holds substantial promise for future growth.

The company operates one of the leading digital advertising businesses, capitalizing on its vast user base of 3.29 billion across platforms like Facebook, Instagram, and WhatsApp. Under the leadership of CEO Mark Zuckerberg, Meta has made significant investments in AI, creating advanced systems such as the open-source Llama model to streamline its operations.

Although Meta is investing heavily in its Reality Labs segment, the current dividend only accounts for 9% of the expected earnings for 2024, indicating considerable growth room. While aggressive dividend increases may be limited until Reality Labs becomes profitable, strong earnings growth of around 17% annually is anticipated, positioning Meta as a potential dividend growth leader.

Investors seeking to diversify their portfolios with AI exposure while benefiting from regular income should consider these three stocks: Broadcom, Microsoft, and Meta Platforms. Each of these companies offers a sound investment opportunity, blending the innovative potential of AI with the reliability of growing dividends.

AI, Stocks, Dividends