We recently compiled a list of the Top 10 Dividend Stocks To Buy According To Hedge Funds. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other top dividend stocks.

The sustained high inflation over the past two years has resulted in increased borrowing costs, posing difficulties for both businesses and consumers. Additionally, uncertainty surrounding potential interest rate cuts by central banks, regulatory changes under the new US administration, and ongoing geopolitical tensions have further dampened economic activity. In this challenging landscape, competition for capital has intensified, with companies focusing on their competitive advantages and adjusting their strategies for both short-term stability and long-term growth to secure essential resources amid rising economic uncertainty.

READ ALSO: 12 High Growth Low Dividend Stocks To Invest In

Dividends are becoming increasingly attractive in the current market environment. A report from S&P Global indicates that global dividend growth saw a significant boost in 2024, rising by 8.5%. This growth was especially notable in the Asia-Pacific region, where government policies encouraged companies to shift from annual to semiannual dividend distributions. Meanwhile, the US market experienced a surge in new and reinstated dividends, with the technology, media, and telecommunications (TMT) sector playing a key role in driving this trend. The report also pointed out that over the past decade, companies across the broader market—excluding real estate investment trusts (REITs)—have, on average, distributed 85% of their discretionary cash flow (DCF), which is calculated as operating cash flow minus capital expenditures. On average, this distribution has been divided between dividends and share buybacks, with 47% allocated to dividends and 38% directed toward buybacks.

Global dividend growth had been slowing since the post-COVID recovery, but that trend reversed last year, with the growth rate accelerating to 8%. Shareholders received approximately $180 billion more in payouts than in 2024, which came as a surprise given the prevailing geopolitical and economic uncertainties, according to an S&P Global report. The firm projects that total global dividend payments will remain at $2.3 trillion in 2025.

Analysts point out that earnings growth has traditionally been the key driver of dividend increases. With strong earnings growth recorded last year, expectations for 2025 are even higher. Goldman projects an 11% rise in earnings per share this year, up from an estimated 8% in 2024, which is expected to drive a 7% increase in dividends, compared to a 6% rise last year. Meanwhile, Ohsung Kwon, a US equity strategist at BofA Securities, holds an even more optimistic view, forecasting a 12% dividend boost this year, supported by accelerating earnings growth.

Historically, dividends accounted for 40% of the market’s total returns from 1936 to 2012, but their contribution has dropped to just 16% over the past decade, according to a BofA Securities research note published late last year. However, Kwon expects dividends to play a more substantial role in overall market returns moving forward.

Our Methodology

For this article, we scanned Insider Monkey’s database of over 1,000 hedge funds and identified the top 10 companies that pay regular dividends to shareholders and have dividend yields of at least 1%, as of February 25. This means the stocks mentioned in this list are the most popular dividend stocks among the elite hedge funds in America. The list is ranked in ascending order of the number of hedge funds having stakes in the companies.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A technician working at a magnified microscope, developing a new integrated circuit.

Broadcom Inc. (NASDAQ:AVGO)

Number of Hedge Fund Holders: 161

Broadcom Inc. (NASDAQ:AVGO) is an American semiconductor company that offers a wide range of semiconductor and infrastructure software products. The company has garnered significant investor interest due to its critical role in enabling products across various industries, including data centers and smartphones. The company plays a dominant role in networking, managing over 99% of internet traffic. Its market position was further strengthened by the acquisition of VMware, a cloud virtualization firm, a year ago. Since then, VMware’s operating margin has climbed to 70%, and the company is on track to exceed its target of generating more than $8.5 billion in adjusted EBITDA within three years.

In the fourth quarter of 2024, Broadcom Inc. (NASDAQ:AVGO) reported $14.05 billion in revenue, reflecting an impressive 51% increase from the previous year. Semiconductor revenue reached a record $30.1 billion, while AI-related revenue surged 220% year-over-year to $12.2 billion, driven by strong demand for its advanced AI XPUs and Ethernet networking solutions. For the full fiscal year, adjusted EBITDA rose 37% year-over-year to a record $31.9 billion.

Broadcom Inc. (NASDAQ:AVGO) has consistently increased its dividend payments for 14 consecutive years, supported by its strong cash flow. In the latest quarter, the company generated $5.6 billion in operating cash flow and $5.48 billion in free cash flow, representing 39% of its total revenue. It currently pays a quarterly dividend of $0.59 per share and has a dividend yield of 1.16%, as of February 25.

Overall AVGO ranks 1st on our list of the dividend stocks according to hedge funds. While we acknowledge the potential for AVGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stock To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.