Broadcom(NASDAQ: AVGO) and Equinix(NASDAQ: EQIX) have been dividend growth juggernauts over the years. They've increased their dividends every year since initiating those payouts while growing them at above-average rates.
That high-powered dividend growth should continue. Broadcom and Equinix have several growth drivers, including artificial intelligence (AI). That makes this duo look like compelling investment opportunities for those seeking income and some AI-driven upside potential.
Finally closed its needle-moving deal
Broadcom's dividend currently yields 1.8%, slightly above the S&P 500's average of 1.5%. The semiconductor and software company recently boosted its payout by 14%. That marked the 13th straight year it has increased its payout since initiating a dividend in its 2011 fiscal year. Broadcom has increased its payout by a stunning 7,400% since its initial level.
It's in an excellent position to continue growing its dividend at an outsized rate. Broadcom recently closed its long-awaited merger with VMware. That transformational transaction should help boost its revenue to more than $50 billion in fiscal 2024, up from a record $35.8 billion in fiscal 2023.
Meanwhile, it sees its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) hitting $30 billion, up from $23.2 billion in the most recent fiscal year. The company converted 49% of its revenue to free cash flow in its last fiscal year. That percentage should rise next year as its margins increase, positioning it to produce even more free cash.
VMware isn't Broadcom's only growth catalyst. The company's legacy business is growing at a solid clip, with revenue rising 8% last year, driven partly by accelerators and network connectivity for AI by large-scale data center operators. Broadcom sees those growth drivers helping sustain mid-to-high single-digit revenue growth in fiscal 2024 for its semiconductor business. Add in its accelerating software growth, which should also benefit from AI, and Broadcom should continue growing its free cash flow and dividend at above-average rates in the future.
Growing briskly with upside catalysts
Equinix currently offers a 2.1% dividend yield. The data center REIT has increased that payout every year since it converted to a REIT in 2015. It has supercharged its dividend this year, increasing it by 10% in February and another 25% in October.
The REIT is in an excellent position to continue growing its payout at an outsized rate. Equinix sees growing demand for data center capacity driven by digitalization, powering 8% to 10% annual revenue growth through 2027 and pushing the total to $12 billion. That should drive 7% to 10% annual growth in its adjusted funds from operations (FFO) per share. That growing cash flow and a low dividend payout ratio (45% in 2023) supports the REIT's outlook that it can increase its dividend at a more than 10% annual rate over the next few years.
Equinix's forecast doesn't include any impact from AI or acquisitions, which are meaningful upside drivers. The company believes AI infrastructure could be a $60 billion market opportunity by 2026. Given its leading global data center platform, it's well positioned to capture some of that opportunity.
The data center REIT is already starting to see some uplift from AI. Its data centers are becoming preferred by customers deploying private AI infrastructures. One factor driving this preference is the advanced deployment of technologies like using liquid cooling to support AI workloads.
Meanwhile, Equinix has an extensive record of making value-enhancing acquisitions to accelerate growth. It has made several deals over the years, which have added $3 billion in incremental adjusted EBITDA. It has the strongest balance sheet in its peer group, putting it in a solid position to continue making accretive acquisitions. AI-powered upside and needle-moving deals could enable Equinix to deliver even faster dividend growth in the coming years.
Dividend growth machines
Broadcom and Equinix have grown their revenue and earnings rapidly over the years. That has given them the power to increase their dividend payments at above-average rates. Thanks to AI, they're in an excellent position to continue delivering above-average growth in the coming years. All this means they look like compelling options for those seeking rapidly rising income streams and big-time upside potential.
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Matthew DiLallo has positions in Broadcom, Equinix, and VMware. The Motley Fool has positions in and recommends Equinix. The Motley Fool recommends Broadcom and VMware. The Motley Fool has a disclosure policy.
