The prevailing narrative of the stock market in 2023 is that tech stocks - and specifically, artificial intelligence (AI) names - rallied massively during the first half, while dividend-paying stocks fell behind. However, the reality is that there's a fair amount of overlap between these two groups, and as we head closer to 2024, it's worth adding exposure to some of these names to help position your portfolio for solid returns in the face of lingering macroeconomic uncertainties.
Here's a look at two mega-cap tech names set to grow earnings next year, both of which are buy-rated by analysts - and offer investors a long history of dividend growth, too.
Cisco Systems
Software giant Cisco Systems (CSCO) is an American-based multinational digital communications and information technology company, best known for its outsized footprint in enterprise networking, security, and software. CSCO has a market cap of $210.85 billion, and offers a dividend yield of 2.98%, backed by over a decade of growth.
Over the past 52 weeks, CSCO is up 18.7% - underperforming a rally of 33.8% for the tech-heavy Nasdaq-100 Index ($IUXX), but ahead of the 11.6% gain for the S&P 500 Index ($SPX).
The company reported operating cash flow of $19.9 billion for fiscal 2023, up 50% year over year. Cisco’s remarkable quantity of cash allowed it to return $2.8 billion to stockholders through share buybacks and dividends last quarter.
Investors should note that Cisco is set to report earnings next Wednesday, Nov. 15. Looking ahead, analysts expect CSCO to grow earnings by 4.4% to $3.57 per share in fiscal 2024, with additional 4.5% growth predicted for 2025. Cisco, meanwhile, projects that its pending acquisition of Splunk (SPLK) will start to boost adjusted earnings by the second year of integration.
Analysts are bullish on the stock, with a consensus “moderate buy” rating and only one “sell” out of 18 analysts in coverage. The mean price target of $58.68 represents expected upside of 11.5% from current levels.
Broadcom Ltd
As a designer, developer, and supplier of semiconductor devices, Broadcom (AVGO) has been one of the key beneficiaries of this year's AI boom. Valued at a market cap of $376.15 billion, Broadcom shares offer a dividend yield of 2.02%. This shareholder payout has increased consistently for over a decade.
AVGO is up more than 94% over the past 52 weeks, easily outperforming both the Nasdaq-100 and the S&P 500.
Last quarter, Broadcom grew adjusted EBITDA by 8% year-over-year and generated $4.72 billion in cash from operations, with $2.17 billion spent on dividends and buybacks. While the chipmaker's acquisition of VMware (VMW) is still pending approval by Chinese authorities - and amid increasingly icy U.S.-China relations - analysts expect AVGO to grow earnings by about 8% both this fiscal year and in 2024.
Wall Street analysts are extremely bullish on the stock, with 15 “strong buy” ratings and zero “sells” out of 20 analysts in coverage. Broadcom has a mean price target of $956.56, representing a slight discount to Friday's closing price above $957. However, quite a few analysts - including those at Bank of America, Baird, and Bernstein - now have price targets of $1,000 or higher for AVGO.
