Why You Should Not Buy Broadcom Limited (NASDAQ:AVGO) For Dividends
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 7 years Broadcom Limited (NASDAQ:AVGO) has returned an average of 2.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Broadcom should have a place in your portfolio. View our latest analysis for Broadcom
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Does it pay an annual yield higher than 75% of dividend payers?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has the amount of dividend per share grown over the past?
Can it afford to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
Does Broadcom pass our checks?
The current trailing twelve-month payout ratio for AVGO is 114.73%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 48.22%, leading to a dividend yield of 3.23%. Furthermore, EPS should increase to $8.16, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Broadcom as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Broadcom generates a yield of 2.97%, which is high for Semiconductor stocks but still below the market’s top dividend payers.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Broadcom for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three fundamental aspects you should further examine:
1. Future Outlook: What are well-informed industry analysts predicting for AVGO’s future growth? Take a look at our free research report of analyst consensus for AVGO’s outlook.
2. Valuation: What is AVGO worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AVGO is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
