Tech stocks are more known for their long-term growth than their dividends, as many of the industry's top performers either have no dividend to speak of or offer a relatively small one. However, even a small dividend can be a nice bonus on top of reliable price appreciation.
The tech-driven Nasdaq Composite index has soared about 289% over the last 10 years, with much of its recent growth fueled by a surge in artificial intelligence (AI). That technology has massive growth potential in the coming years, projected to reach nearly $2 trillion in spending by 2030. Meanwhile, some of the biggest players in the market offer dividends that, consistently reinvested, could expand your positions in this hypergrowth industry.
As a result, a dividend-paying AI stock could offer the best of both worlds: significant long-term growth and a cash bonus. So, here are three dividend stocks making inroads in AI in 2024.
1. Intel
Intel (NASDAQ: INTC) paid its first quarterly dividend in 1992, at $0.10 per share. That figure has fluctuated considerably since then, reaching as high as $0.365 in 2022. For years, the company was known for offering one of the most generous dividends in tech, but recent restructuring saw its quarterly payout decrease to $0.125 in 2023, and it has yet to rise.
Yet, a decreased dividend is likely the right move for Intel's long-term success as it ventures full force into AI. Intel has been in a rut in recent years, challenged by rising competition in the chip market and a lack of direction. But since the start of last year, management reorganized its business to expand and invest in two key growth areas: AI and its foundry division.
Intel's new focus has seen it debut a range of AI-capable chips and begin construction on the first of at least four chip plants it will build in the U.S. Each of these moves broadens and diversifies the company's role in AI -- and tech in general -- which will likely boost earnings in the coming years and allow it to reward investors with dividend growth.
A price-to-sales ratio of 2 makes its stock a bargain right now and too good to ignore given its potential.
2. Alphabet
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is new to the dividend game, initiating it on June 16 with a 0.44% yield and quarterly payout of $0.20. The cash-rich company has more than $16 billion in free cash flow and $101 billion in cash, cash equivalents, and marketable securities.
Meanwhile, the company is reinvesting its earnings in the budding AI market. As the home of potent brands like Google, YouTube, and Android, Alphabet has the unique opportunity to integrate AI across its product lineup and become a leading driver in the public's adoption of the technology.
It has started by expanding Google Cloud's AI capabilities, adding generative features to Google Search, and improving its digital ad technology.
The company posted its second-quarter 2024 earnings on July 23. Revenue rose 14% year over year, beating Wall Street estimates by $450 million. Operating income climbed 26% to $27 billion, profiting from significant growth in its AI-focused Google Cloud.
Alphabet's stock recently was trading at 26 times its earnings, a great value compared to its potential, making it worth considering this month.
3. Microsoft
Microsoft (NASDAQ: MSFT) is easily one of the most reliable dividend stocks active in AI. Management has consistently raised its payout every year since 2013, no matter the market conditions. The quarterly amount has risen 226% since 2013, reaching $0.75 in 2023, for a yield of 0.67%.
The company has become one of the biggest threats in AI thanks to a lucrative partnership with ChatGPT developer OpenAI and extensive financial resources. That heavy investment gave Microsoft access to some of the most advanced AI models in the industry, allowing it to elevate its business with the technology. And earnings show the company is already profiting from its AI expansion.
In the third quarter, Microsoft's revenue rose 17% year over year; operating income increased by 23%. The impressive growth was primarily fueled by its productivity and cloud businesses, which have both introduced a range of new AI features since the start of last year.
Microsoft hit $71 billion in free cash flow this year, outperforming its biggest cloud rival, Amazon, which reached $46 billion. Microsoft's price-to-earnings ratio of 37 means its stock isn't the best value, but its generous dividend and growth potential make it worth its premium price, with its stock a no-brainer right now.
Should you invest $1,000 in Intel right now?
Before you buy stock in Intel, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $692,784!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 22, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 Dividend Stocks Making Inroads in Artificial Intelligence (AI) in 2024 was originally published by The Motley Fool