What are we looking for?
Stocks with significant exposure to leading-edge artificial intelligence (AI) that have sustainable dividends.
The screen
News that Microsoft will add OpenAI’s chatbot software to its own AI offerings has only bolstered interest in that potentially transformative communications tool.
ChatGPT – the name of OpenAI’s chatbot – interacts with users in a conversational way, formulating its own complex and surprisingly human-like written responses. That further advances AI and its practical application.
Microsoft’s support for San Francisco-based OpenAI bodes well for its future profitability and that of other AI startups. Still, we think the best way for most investors to tap this technological evolution is through industry players that also have a sound, existing core business.
Our search started with a list of U.S. and Canadian stocks with significant exposure to AI, as well as the financial clout to currently pay sustainable dividends. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow to cover dividends;
- One point if the company is an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; four to six points, average sustainability; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated seven stocks. Microsoft Corp. MSFT-Q, based in Redmond, Wash., was an early investor in ChatGPT and is using its own high R&D spending to deepen AI-driven functions across its products and services. Nvidia Corp. NVDA-Q, headquartered in Santa Clara, Calif., is a leader in graphics and multimedia chips, as well as the computer chips that make AI applications possible. Intel Corp. INTC-Q, also based in Santa Clara, is one of the world’s biggest makers of chips for PCs and servers, and it has used timely acquisitions to accelerate the launch of its AI chips. Similarly, San Diego-based Qualcomm Inc. QCOM-Q, which focuses on chips and software for wireless devices and is rapidly adding AI capabilities to its offerings. Boston-based Teradyne Inc. TER-Q is a leading global supplier of automated test equipment used by computer chip makers. Complex AI chip designs bring new requirements for enhanced testing, with Teradyne meeting that demand. (Note, like Nvidia, Teradyne’s dividend yield is low. That reflects heavy reinvestment of cash flow into R&D to stay ahead of competitors.) Armonk, N.Y.-based IBM Corp. IBM-N, one of the world’s largest computer companies, counts operations in more than 175 countries. It’s at the forefront of AI research and applications, including its own AI-powered chatbot, Watson Assistant. And finally, Accenture PLC ACN-N is a U.S.-focused professional services company based in Dublin specializing in IT services. It increasingly oversees AI deployment for its customers with an eye to protecting ethical standards.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton