Broadcom simply delivered one thing most dividend buyers dream about: a double-digit dividend improve that got here proper alongside beautiful enterprise outcomes.
The semiconductor and software program firm introduced a ten.2% dividend hike to $0.65 per share on Dec. 11, the identical day it reported file fourth-quarter income of $18 billion.
However the larger query now’s whether or not Broadcom (AVGO) can hold this streak alive. The corporate’s future dividend progress relies upon nearly solely on whether or not the AI spending increase continues or lastly cools off.
Broadcom has raised its annual dividend from simply $0.19 per share in fiscal 2016 to $2.42 per share in fiscal 2025. That is a outstanding run.
Let’s see if Broadcom inventory can proceed to boost dividends in fiscal 2026 and past.
Broadcom is bullish on AI progress.
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AVGO inventory has a sustainable dividend payout ratio
Broadcom’s dividend observe file stands out, even in a market the place many tech corporations have began paying dividends.
AVGO has elevated its annual dividend for 15 consecutive years since initiating dividends in fiscal 2011. This newest 10% improve marks the continuation of that streak.
What’s spectacular is that Broadcom maintained this dividend progress even whereas making huge acquisitions. It accomplished its $69 billion buy of VMware in late 2023, one of many largest tech offers ever, Reuters reported.
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In fiscal 2025, Broadcom returned $17.5 billion to shareholders by $11.1 billion in dividends and $6.4 billion in share buybacks. The corporate generated $26.9 billion in free money circulate, up 39% yr over yr.
CFO Kirsten Spears emphasised the corporate’s dedication throughout the earnings name, noting that the brand new quarterly dividend of $0.65 per share implies an annual dividend of $2.60 per share, indicating a yield of lower than 1%.
The board additionally authorised an extension of the corporate’s share repurchase program, with $7.5 billion remaining, by the tip of calendar yr 2026.
- Analysts masking AVGO inventory forecast it to develop FCF from $26.9 billion in 2025 to $107 billion in 2029.
- Comparatively, the annual dividend is projected to broaden from $2.42 per share to $4.60 per share.
- Given an annual dividend expense of $12.34 billion, the payout ratio is estimated to enhance from 46% in 2025 to twenty% in 2030.
Key dividend metrics for Broadcom inventory
- Quarterly dividend: $0.65 per share
- Annual dividend: $2.60 per share
- Dividend yield: Roughly 0.8% (primarily based on current inventory worth)
- Payout ratio: Roughly 46% primarily based on fiscal 2025 free money circulate
- Consecutive years of dividend will increase: 15 years
- Whole shareholder returns in fiscal 2025: $17.5 billion
AI to assist dividend progress for AVGO inventory
The apparent query is whether or not Broadcom can preserve this tempo of dividend will increase. The reply relies upon largely on whether or not AI spending continues at present ranges.
Broadcom’s enterprise mannequin is more and more concentrated in AI. The corporate’s $73 billion AI backlog represents almost half of its complete consolidated backlog of $162 billion.
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Through the September Goldman Sachs expertise convention, CEO Hock Tan shared an fascinating element.
- His compensation package deal consists of incentives tied to hitting $120 billion in AI income by 2030. That is a sixfold improve from the $20 billion generated in fiscal 2025.
- This goal suggests administration believes the AI increase has years to run. Nevertheless it additionally highlights how dependent the corporate has change into on this single market section.
Broadcom’s non-AI semiconductor enterprise was flat yr over yr within the fourth quarter. The infrastructure software program section, which incorporates VMware, grew 19% however at a a lot slower tempo than AI.
If AI demand falters, Broadcom’s capability to proceed elevating dividends at this tempo might be in danger. Nonetheless, the corporate’s huge backlog gives visibility into not less than the subsequent 18 months of income.
Broadcom’s AI enterprise has accelerated
Broadcom’s current dividend improve did not occur in a vacuum. It adopted explosive progress within the firm’s synthetic intelligence (AI) enterprise.
In fiscal 2025, Broadcom’s AI income grew 65% yr over yr to $20 billion. Tan expects this progress to speed up dramatically in 2026.
Through the firm’s December earnings name, he acknowledged that AI income would double yr over yr within the first quarter to $8.2 billion.
The corporate has secured huge orders from tech giants constructing AI infrastructure. Broadcom revealed it now has 5 prospects for its customized AI chips, known as XPUs, together with a fifth buyer that positioned a $1 billion order.
Most notably, the corporate obtained an $11 billion order from a single buyer for supply in late 2026, along with a $10 billion order from the identical buyer within the earlier quarter.
Broadcom’s complete AI backlog now exceeds $73 billion, with supply anticipated over the subsequent 18 months. The corporate’s networking merchandise are additionally seeing unprecedented demand, notably the Tomahawk 6 change.
Broadcom’s margin query
One problem going through Broadcom is margin strain from its enlargement of its AI enterprise. The corporate is more and more promoting full techniques quite than simply chips.
These system gross sales embrace parts that Broadcom would not manufacture, which get handed by at decrease margins. That is much like how reminiscence chips within the firm’s XPUs scale back total gross margins.
Through the December earnings name, Spears acknowledged this dynamic. “Gross margin dollars will go up, margins will go down,” she defined.
AVGO expects working margins to carry up higher than gross margins because of working leverage. As income scales dramatically, the corporate can unfold fastened prices throughout a a lot bigger income base.
Within the fourth quarter, Broadcom achieved a file adjusted EBITDA of $12.2 billion, or 68% of income. This exceeded the corporate’s 67% steering and was up from the prior yr.
The underside line
Broadcom’s 10% dividend improve is spectacular, given the corporate’s already substantial payout. The semiconductor big has constructed a outstanding observe file of constant dividend progress.
A capability to keep up this tempo in 2026 and past relies upon nearly solely on the AI market.
Nonetheless, Broadcom’s growing focus in AI creates threat. If tech giants gradual their infrastructure spending or shift to completely different suppliers, the corporate’s progress might stall shortly.
For now, the mix of huge backlog, sturdy money circulate era, and administration’s aggressive progress targets suggests one other yr of strong dividend will increase is probably going.
Associated: Broadcom: A high-conviction dividend inventory I might personal in 2026
