The year 2024 proved favorable for dividends, even though the Dividend Aristocrats Index lagged behind the broader market. Throughout the year, US companies consistently increased or upheld their dividend payouts. In addition, several major tech firms began offering dividends, signaling to investors that it's possible for a company to focus on both growth and shareholder returns. By September 30, 2024, approximately 80% of the companies in the S&P index were distributing dividends, a figure that has remained fairly stable over the past decade. Notably, nearly 24% of these dividend-paying firms were in the technology sector, a significant increase from 13% ten years ago. Sectors such as healthcare and industrials also experienced notable growth in the number of companies offering dividends. This broader distribution of dividends has expanded the range of investment opportunities, giving equity-income investors more access to high-growth, dynamic, and innovative companies. Given these developments, analysts remain optimistic about their performance heading into 2025.
Analysts note that, from a broad perspective, earnings growth has traditionally been the primary driver of dividends. Last year saw strong earnings growth, and they anticipate an even better performance in 2025. Goldman predicts an 11% increase in earnings per share for this year, up from an estimated 8% in 2024. This is expected to result in a 7% rise in dividends, compared to a 6% increase last year. Ohsung Kwon, a US equity strategist at BofA Securities, offers a more optimistic outlook, forecasting a 12% boost in dividends this year, fueled by accelerating earnings growth.
Dividends historically accounted for 40% of the market’s total return from 1936 to 2012 but have contributed only 16% over the past ten years, according to a research note from BofA Securities released late last year. Looking forward, Kwon anticipates that dividends will have a more significant impact on total returns compared to the previous decade.
Dividends hold particular significance, especially as the broader market has experienced consecutive gains of over 20%, a scenario not seen since the late 1990s. Moreover, the low payout ratio, currently at 29% compared to the historical average of 50%, suggests there is considerable potential for companies to increase their dividend payouts. Kwon pointed out that another key factor supporting dividend investing is the growing number of retired baby boomers seeking income. With cash products yielding around 4%, there is a strong demand for dividends, as investors are looking for immediate cash returns and are pressuring companies to increase their dividend distributions.
This optimism about dividend stocks is largely rooted in their historical performance, as they have been instrumental in reducing overall portfolio volatility and can help cushion losses when stock prices decline. Research indicates that dividend-paying stocks often outperform their non-dividend-paying counterparts during bear markets, such as during the tech bubble burst in the early 2000s and the global financial crisis. This may be because companies that pay dividends are typically larger, more established, and more profitable, making them more resilient than the broader market.
From October 2019 to September 2024, a period marked by significant fluctuations in the market’s total performance, equity income funds demonstrated lower volatility and reduced downside risk compared to the broader market. Given this, we will discuss the most reliable dividend stocks to invest in.
Our Methodology:
For this list, we used a stock screener to identify companies with a history of dividend growth spanning over 10 years. From this group, we selected companies offering dividend yields of at least 1% as of January 12. From that selection, we identified the ten stocks that hedge funds favored the most during the third quarter of 2024, based on data from Insider Monkey's database. The stocks are ranked in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Is Broadcom Inc. (AVGO) The Best NASDAQ Stock To Buy in 2025?
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO) is an American multinational semiconductor company that offers a wide range of semiconductor and infrastructure software products. The company is behind a wide range of products used in everything from data centers to smartphones. A notable statistic highlighting its dominance in the networking space is that over 99% of all internet traffic passes through Broadcom technology. The company is also benefiting from its acquisition of cloud virtualization company VMware, which was finalized a year ago. VMware's operating margin has reached 70%, and Broadcom is on track to achieve an adjusted EBITDA exceeding its target of $8.5 billion within three years.
Broadcom Inc. (NASDAQ:AVGO) recently announced its Q4 2024 earnings, reporting revenue of $14.05 billion, which represents a substantial growth of over 51% compared to the same period last year. Semiconductor revenue hit a record $30.1 billion, driven by $12.2 billion in AI revenue. The AI revenue, which grew 220% year-over-year, was primarily fueled by the company's advanced AI XPUs and Ethernet networking portfolio. For fiscal year 2024, adjusted EBITDA increased by 37% from the previous year, reaching a record $31.9 billion.
Broadcom Inc. (NASDAQ:AVGO), one of the best dividend stocks, currently offers a quarterly dividend of $0.59 per share, having raised it by 11.3% in December 2024. This was the company's 14th consecutive year of dividend growth. The company achieved this dividend growth because of its strong cash position. During the quarter, the company generated over $5.6 billion in operating cash flow, with free cash flow totaling $5.48 billion. This cash flow accounted for 39% of the company’s revenue. The stock supports a dividend yield of 1.05%, as of January 12.
As of the end of Q3 2024, 128 hedge funds in Insider Monkey’s database held stakes in Broadcom Inc. (NASDAQ:AVGO), compared with 130 in the previous quarter. The consolidated value of these stakes is over $14.5 billion.
Overall AVGO ranks 1st on our list of the most reliable dividend stocks to buy according to hedge funds. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
