Broadcom (AVGO 1.63%) has produced monster returns in recent years -- pole-vaulting the semiconductor and infrastructure software giant to seventh on the list of the most valuable S&P 500 components by market capitalization.
Broadcom has captured the market's attention for its exponential artificial intelligence (AI) revenue growth -- with AI semiconductor revenue expected to make up a staggering 42.9% of first-quarter fiscal 2026 revenue. Just a few years ago, Broadcom was mainly a pick-and-shovel general networking and software company. Now, it is on the cutting edge of building custom AI chips and associated high-performance infrastructure for hyperscale data centers.
With a mere 0.8% dividend yield, Broadcom may not light up a passive income investor's radar. But Broadcom may just be the most underrated dividend growth stock to buy in 2026. Here are three reasons why.
Image source: Getty Images.
1. Broadcom has a track record of annual dividend increases
In December, Broadcom announced a 10% dividend raise -- marking the 15th consecutive annual increase since Broadcom began paying a dividend in fiscal 2011.
Over the last decade, Broadcom's quarterly dividend has surged from less than $0.05 (adjusted for stock splits) to $0.65 -- a 13-fold increase. In that period, Broadcom has made some monster raises, like doubling its dividend year over year multiple times and always increasing it by at least 10% year over year. That's exactly the kind of consistency long-term investors look for.
NASDAQ: AVGO
Key Data Points
2. Broadcom's dividend yield on cost is strong, too
Dividends are an excellent way to generate passive income from your financial portfolio without selling stocks. Companies that increase their dividends over time can be passive income powerhouses by increasing the yield on the original cost of your investment.
Investors who have held the stock have a much higher yield on cost than Broadcom's current 0.8% dividend yield.
For example, if you had bought Broadcom a decade ago for a split-adjusted price of around $15 per share when the stock had a $0.05 quarterly dividend, your yield at the time would have been just 1.3%. But because Broadcom's dividend has increased by so much, your yield on cost today would be 17.3% -- not to mention the roughly 20-fold increase in the stock price.
Investors buying Broadcom today are likely to realize a much higher yield on cost over time. If Broadcom grows its dividend by 15% per year over the next decade, its $2.60 annualized dividend would grow to $10.52 per share. That means investors buying the stock at around $320 per share at the time of this writing could have a yield closer to 3% by holding the stock over time.
This hypothetical example shows how seemingly low-yield growth stocks can become passive-income powerhouses for patient investors.
3. Broadcom's dividend increases are earnings-driven
Rapid dividend growth is only sustainable if a company is also growing earnings and generating consistently positive free cash flow (FCF) to cover the dividend expense.
Broadcom generated $5.55 in trailing-12-month FCF per share -- more than double its dividend expense. Analyst consensus estimates have the company booking $10.29 in fiscal 2026 earnings per share (EPS) and $14.22 in fiscal 2027 EPS.
So not only can the company easily afford its current payout, but high AI-driven earnings growth should set the stage for substantial dividend raises going forward without impacting Broadcom's investments in its operations and long-term projects.
High-octane growth at a reasonable value
Broadcom is an excellent dividend stock because it pairs passive income potential with an exciting growth story. Broadcom can afford to boost its payout without impacting its operations, capital expenditures, or research and development. Sometimes, companies can rely too much on dividends to appease shareholders, but this can drain the company of resources and slow long-term growth. But that isn't the case with Broadcom.
Its legacy networking business, paired with its semiconductor segment, infrastructure software, and booming AI business, gives it a blend of stable, low-margin cash flows and high-margin, faster-growing upside potential.
And with a reasonable 31.1 forward price-to-earnings ratio -- Broadcom is far from an overvalued AI stock.
Add it all up, and there are plenty of reasons to scoop up Broadcom shares in 2026.
