3 AI Dividend Growth Stocks to Buy and Hold for the Long Term

If you're looking for solid investment opportunities in the world of artificial intelligence (AI) that also provide passive income, you’re in luck. There are excellent dividend-paying AI stocks that can deliver both capital gains and reliable income over time.

AI technology has immense potential for growth, and this is not limited to speculative stocks. Several companies leading the AI sector also pay dividends, offering a good balance for dividend investors who wish to diversify their portfolios.

Here are three standout AI stocks that not only yield dividends but also present opportunities for long-term growth:

1. Broadcom

Broadcom (AVGO) is a major player in the semiconductor industry, focusing on chips used in connectivity applications, such as networking and broadband. As part of its growth strategy, Broadcom has integrated enterprise infrastructure software into about 40% of its business through various acquisitions.

For the fiscal year 2024, Broadcom reported impressive revenues of $51.5 billion, with a significant $19.4 billion (37%) coming from free cash flow. The company boasts an impressive track record of paying and increasing its dividends for the past 15 years, with an average increase of 14.7% over the last five years.

Currently, Broadcom's dividend payout ratio stands at a healthy 48% of its projected earnings for the fiscal year 2024, suggesting strong dividend stability and growth potential. Analysts project that Broadcom will experience average earnings growth of nearly 22% annually in the long run, mainly driven by its AI-related ventures. This year alone, the company generated $12.2 billion in AI-related revenue, indicating a bright outlook for its dividends as AI chip development increases.

2. Microsoft

Microsoft (MSFT) has established a remarkable reputation as a dividend growth company, having consistently raised its dividend for 22 years. The company has successfully woven AI into its software products, significantly enhancing the user experience.

With Azure, the world’s second-largest cloud platform, Microsoft experiences robust growth from the AI applications it implements. Despite its large scale, Microsoft continues to show impressive growth, boasting a market cap of $3.2 trillion and annual revenues of $254 billion.

Looking ahead, analysts expect Microsoft’s earnings to grow by an average of 13% each year. The company’s dividend payout ratio is only 26% of its 2024 earnings estimates, indicating a strong safety net for dividends. Furthermore, Microsoft holds an AAA credit rating—this places it alongside very few companies that enjoy such high financial credibility.

3. Meta Platforms

Meta Platforms (META), famous for its social media platforms, has recently ventured into the dividend space by introducing its first payout this year. The company is regarded as one of the world’s leading advertising firms, effectively monetizing advertising opportunities across Facebook, Instagram, WhatsApp, and Threads.

Under the leadership of CEO Mark Zuckerberg, Meta is pushing aggressively into AI. The firm has developed an open-source AI model, Llama, and is investing in data centers to handle its expansive computing needs. Moreover, Meta is putting significant resources into its Reality Labs segment, which has the potential to generate additional growth in the future.

Meta's dividend is relatively low at 9% of its estimated earnings for 2024, which presents substantial room for growth. While aggressive dividend increases may not be expected until the Reality Labs segment becomes profitable, analysts predict that overall earnings will grow by approximately 17% annually, allowing for healthy dividend growth while maintaining a low payout ratio. Meta stands to shine as a promising dividend growth stock.

In conclusion, incorporating these top AI dividend growth stocks into your portfolio could be a strategic move for long-term investment. They not only provide potential capital appreciation but also deliver regular income through dividends, making them attractive options for investors seeking a balanced approach.

AI, Investing, Dividends