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The artificial intelligence (AI) megatrend has taken the markets by storm over the past two years in particular, creating significant wealth for investors. With no signs of letting up anytime soon, the AI market is projected to continue its winning run.
A critical component of the AI ecosystem is the semiconductor chips, the proverbial “picks and shovels” of the AI world. All AI platforms require specialized semiconductor chips to operate, acting as the “engine block” by providing the necessary processing power and efficiency. Projected to grow at a CAGR of 14.9% between 2024 and 2032, the global semiconductor market is poised to reach a staggering size of $2.06 trillion.
With Fed Chair Jerome Powell's cautiously optimistic remarks hinting at an impending rate cut in September, the prospects for these growth-fueled stocks could grow even brighter. For investors looking to add exposure, here are three stocks from the semiconductor niche that have been raising dividends consistently for over a decade, all of which have received the highest endorsement from the analyst community, as well.
1. Broadcom
Founded in 1991 and based out of San Jose, Broadcom (AVGO) is one of the leading semiconductor companies in the world. With a massive market cap of $806.8 billion, Broadcom designs, develops, and supplies a wide range of analog and digital integrated circuits and other related products, and they also develop software for data center networking.
AVGO stock is up 56.3% on a YTD basis, and offers a dividend yield of 1.21%, backed by 14 years of consistent growth. With a reasonable payout ratio of 46.73%, there's plenty of scope for continued dividend growth in the years ahead, as well as investments in new initiatives.
Broadcom's numbers for the latest quarter were impressive, with both revenue and earnings surpassing estimates. Revenues for the fiscal second quarter were reported to be $12.49 billion, representing yearly growth of 43%. Adjusted EPS rose by 6.2% over the same period to $10.96, surpassing the consensus estimate of $10.85. Notably, Broadcom's EPS have topped expectations in each of the past five quarters.
For Q2, the company reported cash flow from operations and free cash flow of $4.58 billion and $4.49 billion, respectively. The company closed the quarter with a healthy cash balance of $9.81 billion.
In the long term, over the past 10 years, the company's revenues and EPS have expanded at a CAGR of 31.33% and 32.65%, respectively.
Broadcom's positive momentum looks poised to continue, fueled by its dominance in the AI market. Sales of AI-related chips skyrocketed 280% year-over-year to $3.1 billion last quarter, capturing 25% of revenue. Broadcom's chips are in seven of the top eight hyperscale AI clusters deployed today, solidifying their leadership. Furthermore, they hold a commanding 60% market share in custom ASICs, a market projected to surge to over $30 billion, with a 20% annual growth rate.
The tech giant is also expanding its reach in wireless with a multi-year, multi-billion dollar deal with Apple (AAPL) for 5G components, strengthening its presence in 5G handsets. Additionally, they're addressing storage connectivity and broadband weaknesses by increasing content per server and capitalizing on cloud data center growth.
Overall, analysts have deemed the Nancy Pelosi stock pick a “Strong Buy,” with the mean target price of $1,834.43 indicating an upside potential of about 5% from current, pre-split levels. Out of 32 analysts covering the stock, 29 have a “Strong Buy” rating and 3 have a “Hold” rating.
2. Microchip Technology
Founded in 1989, Microchip Technology (MCHP) operates in the semiconductors industry, with a leading presence as a supplier of microcontrollers. The company designs, manufactures, and sells embedded control solutions for various applications, including automotive, industrial, consumer, aerospace and defense, and communications. The company currently commands a market cap of $49.5 billion.
MCHP stock is up 6.4% on a YTD basis, and offers a dividend yield of 1.96%. MCHP has been raising dividends consistently over the past 21 years, and with a payout ratio of just 35.6%, there's plenty of room for continued growth. As a further display of commitment to its shareholders, Microchip repurchased a record $387 million of stock and paid out a record $242 million in dividends in the recently concluded fourth quarter of fiscal 2024.
Microchip's results for the fiscal fourth quarter failed to impress, as the company dealt with a “major inventory correction in fiscal 2024.” Net sales dwindled by 40.6% from the previous year to $1.33 billion, while adjusted EPS dropped 65.2% to $0.57, although the results arrived in line with consensus estimates.
Zooming out, over the past 10 years, Microchip's revenues and EPS have grown at a CAGR of 14.73% and 17.04%, respectively.
Cash flow from operations and free cash flow for Q4 came in at $430 million and $389.9 million, respectively, down by more than a third. However, free cash flow margin improved to 29.4% from 26.7% in the same period. Long-term debt levels also remained flat at $5 billion.
Microchip's vast product line and geographically diverse customer base give the company a solid base to work through its current inventory issues. Nearly half (47%) of its fiscal year 2024 revenue originated in Asia, followed by the Americas (29%) and Europe (24%). Management has been proactive in addressing the inventory issues, including the implementation of cost-saving measures, a 51% reduction in capital expenditures (capex) for fiscal year 2025, and a 3% decrease in operating expenses during the second quarter of calendar year 2024.
MCHP also has a vast portfolio of microcontrollers (MCUs), exceeding its nearest competitor by over 6,357 products. This advantage has been further strengthened by recent product launches, including the PIC32CZ, AVR EB, and PIC18-Q20 MCU families.
Overall, analysts have a rating of “Strong Buy” for MCHP stock, with a mean target price of $102.09. That's about 6.4% higher than Wednesday's close. Out of 22 analysts covering the stock, 16 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 5 have a “Hold” rating.
3. Analog Devices
We conclude our list of dividend-paying semiconductor stocks with Analog Devices (ADI). Founded in 1991 by MIT graduates Ray Stata and Matthew Lorber, Analog Devices is a global leader in high-performance semiconductor technology. It bridges the physical and digital worlds with analog, digital, and software solutions.
With a market cap of $115.1 billion, ADI stock is up 20% on a YTD basis. ADI also offers a dividend yield of 1.59%, and has consistently raised its dividends for the past 20 years. With a payout ratio of 46.66%, the company's dividends are well-covered.
ADI's results for the fiscal second quarter were solid, as the company reported a beat on both the revenue and earnings front. Facing inventory headwinds, Analog's revenues fell by 34% from the previous year to $2.16 billion, while EPS declined by 51% over the same period to $1.40, surpassing the consensus estimate of $1.26. Over the past five quarters, Analog's EPS have trumped expectations on four occasions.
Looking back over the past 10 years, the company's revenue and EPS have grown at CAGRs of 14.61% and 11.54%, respectively.
During Q2, Analog reported net cash from operations and free cash flow of $807.85 million and $619.66 million, respectively, closing the quarter with a cash balance of $2.36 billion.
Despite ongoing industry-wide inventory challenges, Analog Devices management remains optimistic about a gradual improvement. The company's Q3 guidance reflects this confidence, projecting the first year-over-year quarterly revenue increase (5% based on a $2.27 billion midpoint) with positive trends across all business segments.
Supporting this outlook is a robust and growing order backlog. During the last quarter, Analog secured new deals in healthcare (including surgical robotics and continuous glucose monitoring), industrial automation, and automotive.
Overall, analysts have deemed ADI stock a “Strong Buy,” with the mean target price of $257.97 indicating an upside potential of roughly 8.2% from current levels. Out of 26 analysts covering the stock, 18 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 7 have a “Hold” rating.
