You don't have to choose between being an income investor and a fan of growth stocks. There are plenty of opportunities to participate in a growing business that also happens to shell out regular cash distributions. You can have the best of both worlds.
Broadcom (AVGO 1.63%) and United Microelectonics (UMC 3.66%) are two attractive dividend payers that also happen to have strong growth prospects. One of the dividend yields is much higher than the other, but the two stocks offer healthy upside with their strong growth prospects. These are two of the best dividend stocks to buy and hold forever.
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1. Broadcom: 0.8% yield
Don't let Broadcom's small payout dissuade you. The provider of semiconductor and tech infrastructure solutions may be packing a yield just shy of 1%, but never punish an income stock simply because it has delivered monster capital appreciation along the way.
Broadcom was yielding more than 5% just seven years ago. Your initial instinct might be to assume that it has cut its distributions along the way, but consider a better reason for the shrinking yield. After all, just last week, Broadcom boosted its dividend by 10%. It has increased its dividend for 15 consecutive years.
Broadcom stock is a seven-bagger over the past five years. The actual quarterly distributions continue to increase, but the yield is lower because the stock is appreciating even faster than the annual hikes.
NASDAQ: AVGO
Key Data Points
Broadcom's run coincides with the boom in artificial intelligence (AI) and other chip-based growth opportunities. It claims that more than 99% of the world's internet traffic crosses through some type of Broadcom technology. With a gargantuan market cap of $1.6 trillion, there are only seven other U.S. exchange-listed stocks with larger market caps. You've heard of the "Magnificent Seven." Meet the one stock that's punching up at the ceiling to crash that penthouse party.
Momentum is on its side right now. The 44% and 24% revenue growth in its two latest fiscal years represent the two largest jumps that the business has taken in the last eight years. The sweet spot here is that this isn't some low-margin commodity play. Broadcom's trailing net profit margin is a whopping 36%. Yes, 36% of its revenue makes it all the way down to the bottom line. This isn't a fluke. More than a third of its revenue has been served up as net income in three of the past four fiscal years.
NYSE: UMC
Key Data Points
2. United Microelectronics: 5.7% yield
If you're looking for a semiconductor stock with a beefier yield, try United Microelectronics. You probably know Taiwan Semiconductor Manufacturing. It's the world's largest semiconductor foundry, accounting for more than two-thirds of the global market. Now consider warming up to Taiwan's second-largest foundry.
United Microelectronics will fall short across many measuring sticks when pitted against TSMC. It's not growing as quickly as the market leader. Its net margin is also less than half of TSMC. However, it stands tall on valuation. TSMC trades at a trailing earnings multiple of 24 and pays a reasonable 1.2% yield. United Microelectronics has a P/E ratio of less than 16 with a chunky 5.7% yield. It pays out a single large dividend every summer.
Revenue growth has been positive in five of the last six years, with double-digit percentage increases in half of those years. United Microelectronics recently reported that sales for the month of November rose 6%, accelerating from its overall pace through the first 10 months of the year. Analysts have been inching their profit targets higher for the current quarter, following a big bottom-line beat in its previous quarter.
Chip stocks come in different flavors and with different payouts. If you can find ascending businesses that just happen to cut regular dividend checks, you'll find yourself winning even when the chips are down.
