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Broadcom: A Semiconductor Superstar With a Safe Dividend

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This week’s Safety Net stock is one of Chief Income Strategist Marc Lichtenfeld’s all-time favorites.

Broadcom (Nasdaq: AVGO) is a tech company that’s primarily focused on semiconductor solutions, including wireless chips used in smartphones and wired infrastructure used in telecom and data centers.

The company has been at the forefront of the discussion as a pick-and-shovel play for the market’s most recent darling: artificial intelligence.

The smarter AI gets, the more powerful and efficient semiconductors will need to be. That’s where Broadcom will step in to provide its products and expertise.

Marc’s love for Broadcom is justified, as the stock has gained over 1,000 points since he recommended the stock to readers back in 2020.

Add the dividend (which currently yields 1.4%) and the fact that Broadcom typically raises it every year, and you can see why Marc likes the stock so much.

He’s just returned from a well-deserved vacation, so you get me instead for the second week in a row. (I’m sure you all are absolutely thrilled!)

While he’s out and I’ve been given the reins, let’s see whether Broadcom’s dividend is safe or in danger of being cut in the near future.

First, as always, let’s look at Broadcom’s free cash flow.

It’s easy to see that Broadcom has a hefty piggy bank saved up to back up its dividend.

Since 2020, Broadcom has grown its free cash flow every year, and it’s projected to do the same this year.

All in all, by the end of 2024, free cash flow is expected to have nearly doubled over the past four years.

Chart: Broadcom Continuing to Show Excellent Growth

On top of that, Broadcom is continuing to pay an affordable dividend. Last year, it brought in $17.6 billion in free cash flow and paid out $7.7 billion in dividends for a payout ratio of just 43.4%. That’s well below our 75% standard.

This year, the company is expected to pay out $8.6 billion in dividends, and free cash flow should leap to over $22.7 billion. That would push the payout ratio even lower to 37.8%.

Finally, if that wasn’t enough, the company has increased its dividend every year for the past decade, which is always an extra boon.

There are plenty of reasons Marc counts Broadcom as one of his favorite stocks – and plenty of reasons to think its dividend is quite safe.

Dividend Safety Rating: A

Dividend Grade Guide

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