With so much interest in artificial intelligence thanks in large part to the introduction of chatbot protocol ChatGPT, investors may want to consider AI stocks with dividends to facilitate diversified and potentially safer exposure to the innovation. Fundamentally, these enterprises offer the best of both worlds: capital gains potential on advancing digitalization initiatives and passive income while you wait.
Primarily, AI stocks with dividends benefit from the brewing upside potential of the underlying industry. According to Grand View Research, the global AI market reached a valuation of $136.55 billion in 2022. Moreover, experts project that the sector will expand at a compound annual growth rate (CAGR) of 37.3% from 2023 to 2030. At the end of the forecasted period, the segment should generate revenue of $1.81 trillion.
However, let’s be honest: startups directly associated with AI development tend to be highly volatile. While they can make you rich, they’re liable to put you in bankruptcy proceedings if you’re not careful. Therefore, AI stocks with dividends present an attractive alternative.
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Although IBM (NYSE:IBM) stumbled in years past due to its connection to legacy business units, the new “Big Blue” represents a powerhouse among AI stocks with dividends. Notably, the company commands a leadership position in the underlying sector with the machine-learning protocol IBM Watson. From finance to biotechnology to environmental research to even sports, Watson delivers myriad relevancies.
Further, IBM is quite generous when it comes to passive income. At the moment, the tech enterprise carries a forward yield of 5.04%. This stat ranks well above the tech sector’s average yield of 1.37%. Also, the company benefits from 29 years of consecutive annual dividend increases. As well, investors may be attracted by IBM’s value proposition. Currently, the market prices IBM at a forward multiple of 13.7. As a discount to projected earnings, the company ranks better than 77.53% of the competition.
To be fair, Wall Street analysts peg IBM as a consensus hold. However, their upside target is $145, implying nearly 11% upside potential.
A designer and manufacturer of various semiconductor and infrastructure software products, Broadcom (NASDAQ:AVGO) is no stranger to innovation. Unsurprisingly, then, it took a leadership role in automation, making AVGO one of the more compelling AI stocks with dividends. Specifically, Broadcom develops applications that automate IT remediation capabilities, dramatically boosting efficiencies. Since the January opener, AVGO gained over 13% of its equity value.
Presently, Broadcom carries a forward yield of 2.94%. While not as generous as IBM, Broadcom handily beats the tech sector’s average yield of 1.37%. Also, it holds its own regarding consistency with a track record of 13 years of consecutive dividend increases. As well, the company has a low payout ratio of 41.59%, facilitating confidence regarding yield sustainability. Also, AVGO presents solid value. The market prices shares at a forward multiple of 15.11. As a discount to projected earnings, the company ranks better than 69.85% of its peers.
Finally, analysts peg AVGO as a consensus strong buy. Their average price target stands at $697.31, which implies over 11% upside potential.
Air Products & Chemicals (APD)
As an industrial firm specializing in selling gases and chemicals, Air Products & Chemicals (NYSE:APD) doesn’t seem a natural fit for AI stocks with dividends. However, machine learning protocols can enhance efficiencies across multiple sectors. Here, Air Products deploys automation to improve its production line, thereby increasing productivity and minimizing resource consumption.
Right now, Air Products carries a forward yield of 2.47%. Admittedly, that’s a bit lower than the materials sector’s average yield of 2.82%. However, the company owns a serious advantage over its rivals: a track record of 42 years of consecutive dividend increases. After eight more years, it can join the exclusive ranks of dividend kings.
Also, the yield should be sustainable considering that Air Products features a highly profitable business. Its trailing-year net margin comes in at 17.61%, beating out 86.76% of the competition. Lastly, analysts peg APD as a consensus moderate buy. Their average price target stands at $321.78, implying almost 14% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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