Dividend investing is an area that some investors want to focus on because it provides an almost guaranteed source of income. However, companies with the highest dividend yields tend to grow slowly, so you need a combination of dividend yield and stock price appreciation to generate a greater total return than the stock market.
But I think most investors are better off finding stocks that are growing rapidly. and paying dividends. These companies can increase their dividends over the next 10 years, turning a small payout today into a huge payout in a decade or more.
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There is no bigger growth area right now than artificial intelligence (AI). Fortunately, several companies in this sector pay dividends. It may not have the highest yield, but that could change in the coming years as cash flow from new AI business units explodes.
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These 5 stocks aren’t the highest yielding stocks available
The following five dividend stocks are worth paying attention to today. Nvidia(NASDAQ:NVDA), taiwan semiconductor manufacturing(NYSE:TSM), alphabet(NASDAQ:GOOG)(NASDAQ:Google), microsoft(NASDAQ: MSFT)and meta platform(NASDAQ:Meta). These five companies are on our list of the best AI stocks to buy, but their dividends are rarely part of their investment thesis. That’s because the focus isn’t on dividends at the moment, it’s on raw growth. Companies like Alphabet, Microsoft, and Meta Platforms are pouring all the unspent money they can into data centers.
Meanwhile, Nvidia and Taiwan Semiconductor supply these companies with the components needed to put computing devices in these data centers. As a result, they can focus a little more on dividends. From a dividend perspective, none of these stocks yield more than 1%.
NVDA Dividend Yield Data by YCharts
Nvidia looks like it, barely Dividends are paid, that’s changing. In its last earnings call, Nvidia announced a dividend increase from $0.01 to $0.25 per share. This works out to a yield of about 0.45%, which isn’t breathtaking, but it’s an improvement.
The other companies on this list have all announced large capital investment plans this year, so don’t expect price increases in the future. This is likely to eliminate the possibility of a rate hike in the near future.
Overall, these five dividends won’t change your earnings significantly, since most profits come from the company’s raw growth. However, it has great potential to increase its value in the coming years.
Dividend payout ratio is low
Looking at how much dividends a company pays is only part of the equation. What investors should pay attention to is the payout ratio, or what percentage of profits are paid out as dividends. Popular dividend stocks include companies such as: JP Morgan Chase, johnson & johnsonand caterpillar. JPMorgan and Caterpillar will pay out more than 30% of profits, and Johnson & Johnson will pay out 60%. The group of five AI stocks is much lower, with only Taiwan Semiconductor and Microsoft coming close to this number.
NVDA Payout Percentage (TTM) Data by YCharts
As a result, all of these companies could end up paying out even more money to their shareholders unless there is a big opportunity in the AI space. Once the AI ramp-up is complete, dividends could be the best investment for your cash, with dividend increases likely to follow. That may or may not work, but I remain confident in the long-term potential returns that these five can provide, just from an AI investment perspective. The outlook is even better as the dividend could grow significantly over the next 10 years.
Should you buy Nvidia stock now?
Before buying Nvidia stock, consider the following:
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JPMorgan Chase is an advertising partner of Motley Fool Money. Keithen Drury has worked at Alphabet, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Caterpillar, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
