This Semiconductor Stock Has Growth & Dividends

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Amazon.com, Google, Meta Platforms, and Tesla are among the greatest growth stocks of the last decade. 

However, they have one thing in common, they don’t offer dividends to their investors. 

In fact, it’s rare for a growth stock to issue dividends. Heck, even Warren Buffett’s Berkshire Hathway despises them. 

But there is one company out there that is bucking the trend. 

It recently announced one of the largest M&A deals in tech history…and it offers its shared holders a dividend north of $16. 

That sent the stock’s search results skyrocketing amongst finance pros, putting it in the top 10 semiconductor stock searches in months.

And with shares now down more than 25%, does that make Broadcom (AVGO) a buy?

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Broadcom’s Business

AVGO designs, develops, and supplies semiconductor devices globally. The firm operates via two segments: Semiconductor Solutions and Infrastructure Software. 

Its semiconductor portfolio includes data center switches and routers, cable models, Ethernet NICs, and wireless connectivity solutions to name a few. 

The company’s infrastructure software portfolio includes enterprise solutions for building, connecting, and managing.

And it does it well. Overall the firm has over 23,000 patents. 

The company’s consolidated revenues grew 23% YoY to a record $8.1 billion and operating profit jumped 30% during Q2 2022. 

In addition, AVGO generated $4.2 billion in free cash flow, and returned $4.5 billion to shareholders in the quarter, including $1.7 billion of cash dividends and $2.8 billion of share repurchases. 

The firm attributed its strength in Q2 due to networking and server storage. As it expects that trend to continue into Q3. 

Earlier this year AVGO announced it would be buying VMware (VMW) for $61 billion. 

Financials

Despite its massive size, AVGO has been able to consistently grow its revenues. As mentioned earlier, last quarter was a record for the firm in terms of revenues. 

But even more impressive is the firm’s gross profit margin which sits at 74.8%. 

Moreover, it has been able to grow its revenues at a steady pace, 17.3% (YoY). And its EBITDA growth (YoY) is 29%, a significant difference from the sector median of 21%

AVGO is a cash cow. The firm generated $14.8 billion in cash from operations (TTM). 

Additionally, it has a quick ratio of 1.9x and a current ratio of 2.1x. This means it has enough cash and assets to cover its short-term liabilities. Typically investors want to see anything above 1x. 

Valuation

AVGO has a P/E ratio of 24.3x, which is considerably lower than its 5-year average of 46x. Furthermore, AVGO has a price-to-cash-flow ratio of 13.37x, which is much better than the sector median of 18.73x and competitors QCOM, AMD, TXN, and ADI.  

When looking at the price-to-sales ratio, AVGO stands at 6.72x, which is not as good as INTC 1.95x, QCOM 3.73x, or AMD 5.2x. 

Of course, a closer look at AVGO, and you’ll notice a massive dividend. The firm pays $16.40 per share annually to its shareholders. 

Additionally, AVGO boasts better gross profit margins than QCOM, AMD, TXN, and INTC. It also has a better EBITDA margin than INTC, QCOM, and AMD. 

While revenue growth is not as great as QCOM, TXN, or AMD. Some analysts believe that AVGO could start to experience greater growth with its upcoming acquisition of VMware. 

Our Opinion – 9/10

Despite all the economic uncertainty, geopolitical tensions, and supply-chain disruptions, AVGO continues to put up numbers. 

Most dividend stocks aren’t associated with growth. But that’s exactly what you get with AVGO. 

We believe AVGO has a bright future, and is a buy at these current levels.