Better AI Dividend Stock: Apple vs. Broadcom

Key Points

• Of today's top U.S. companies by market cap, only Broadcom and Apple pay dividends.

• Both yields are less than 1% because the companies' shares have appreciated so quickly.

• Although Broadcom's yield is larger, Apple's has increased faster relative to its free cash flow growth.

• 10 stocks we like better than Apple ›

If you were trying to find dividend stocks before the year 2000, the largest companies in the U.S. were a great place to look. Stalwarts like General Electric (today called GE Aerospace), Pfizer, Walmart, IBM, and the oil companies that would merge to form ExxonMobil were all among the 10 largest companies by market cap, and all paid dividends.

Today, on the other hand, the country's largest companies are much more stingy their payouts. Of the nine U.S.-based companies with trillion-dollar-plus market caps, just two pay a dividend: Broadcom (NASDAQ: AVGO) and Apple (NASDAQ: AAPL).

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But which of these massive tech companies is the better buy for dividend investors?

Image source: Getty Images.

Rising payouts, shrinking yields

At first glance, neither company's dividend looks particularly impressive. Apple's dividend yield is just 0.4%, and Broadcom's isn't much better, at 0.7%. Are those even worth considering for income investors?

The answer is yes, because those yields aren't small due to a lack of dividend increases from management. In fact, both Broadcom and Apple have a recent history of annual dividend hikes. Broadcom has raised its dividend every year since 2016, and Apple has done so since 2012.

The reason the companies' yields are currently so small despite these annual increases is actually a good thing for investors. Their share prices have increased much faster than their dividend payouts. Over the last 10 years, Apple's dividend has grown by 100%, while Broadcom's has grown by more than 1,200%! But during that same period, Apple's share price has increased more than 800%, and Broadcom's shares have jumped more than 2,800%, so the dividend yield for each has shrunk.

Broadcom has done a better job of increasing its dividend relative to its share price increases, but there's more to consider here.

Paying for that payout

Dividends are paid out of free cash flow, and Apple has a lot more of that than Broadcom. In 2024, Apple generated $108.8 billion in free cash flow, compared to just $19.4 billion for Broadcom. Meanwhile Broadcom paid a total of $9.8 billion in dividend payments, compared to $15.2 billion for Apple.

One way to look at this is that Broadcom is much more generous with its dividend payments, and in fact, Broadcom's dividend increase of 1,240% over the last 10 years is roughly comparable to the trailing 12-month (TTM) increase in its net income (1,250%) and its free cash flow (1,350%) during that time. That still leaves Broadcom with plenty of leftover cash after its dividends are paid.

Although Apple spends a smaller percentage of its free cash flow on dividend payouts, it has actually increased its dividend much faster than its free cash flow. On a TTM basis, Apple's free cash flow has only increased by 37.8% over the last 10 years, and its net income has only gone up by 86%, but its dividend has increased by 100%. So, it may spend a much smaller percentage of its free cash flow on shareholder dividends than Broadcom, but it has raised its dividend at a faster rate relative to its free cash flow.

The better AI dividend stock

While both companies' dividend yields are comparatively small, they've both shown a commitment to annual dividend increases, and both have plenty of room to increase their dividends further without overly taxing their free cash flow.

Because both dividends look well funded and likely to continue growing, dividend investors will likely want to pick Broadcom for its (currently) higher yield. That said, income investors are unlikely to go wrong with either of these massive artificial intelligence (AI) heavyweights.

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John Bromels has positions in Apple. The Motley Fool has positions in and recommends Apple, International Business Machines, Pfizer, and Walmart. The Motley Fool recommends Broadcom and GE Aerospace. The Motley Fool has a disclosure policy.