In a major development, Intel (INTC) recently announced it would suspend its quarterly dividend and cut 15% of its workforce, as part of a turnaround strategy aimed at addressing challenges in its manufacturing business and its lagging position in artificial intelligence (AI) chips. While this news may be a blow to Intel investors, it has created a void in the market for dividend-seeking investors looking for quality, large-cap semiconductor stocks that offer strong growth prospects and reliable passive income streams.
And despite Intel's struggles, the semiconductor market as a whole is thriving. The Semiconductor Industry Association (SIA) reported that global semiconductor sales surged by 18.3% in Q2 2024 compared to the same period in 2023, hitting $149.9 billion. This growth is driven by rising demand in AI, automotive, and data centers, with the market expected to reach $617 billion by the end of 2024, up from $529 billion in 2023.
Now, if you're looking to replace Intel in your portfolio with some solid, dividend-paying chip stocks that still have room to grow, I've got three contenders for you: Broadcom (AVGO), Qualcomm (QCOM), and Microchip Technology (MCHP). Let's explore what makes these three stocks worth considering.
#1. Broadcom Inc. (AVGO)
Broadcom Inc. (AVGO) is a global tech leader that designs and supplies a wide range of semiconductor and infrastructure software solutions. The company's diverse business model covers data centers, networking, software, broadband, wireless, and storage sectors.
AVGO has delivered a market-beating price performance, with a 52-week gain of 65% and a year-to-date surge of 30.5%.
With a market cap of around $634.5 billion and a forward P/E ratio of 28.69, Broadcom is priced for growth. The company is also committed to shareholder value, offering a dividend yield of 1.54% based on its quarterly payout of $5.25 per share. Impressively, Broadcom has increased its dividend for 14 consecutive years, a testament to its earnings stability.
In its second-quarter fiscal year 2024 earnings report, Broadcom posted revenue of $12.49 billion, up 43% from the previous year, on adjusted EPS of $1.10. This stronger-than-forecast performance was driven by high demand for its AI products and the successful integration of VMware. For fiscal year 2024, Broadcom expects revenue to hit around $51.0 billion, a 42% increase from the prior year.
Recent developments include the launch of Broadcom's Automic Automation solution as a SaaS offering, and the expansion of its Global Cybersecurity Aggregator Program through the Accelerate Program. These initiatives aim to simplify automation and enhance customer support and experience.
Analysts are bullish on AVGO, with 29 out of 32 recommending a “strong buy” and 3 suggesting a “hold.” The mean target price is $190.51, representing a potential upside of 30.7% from the current price. With Intel suspending its dividend, Broadcom stands out as a top buy-rated, dividend-paying alternative in the semiconductor industry.
#2. Qualcomm Incorporated (QCOM)
Qualcomm Incorporated (QCOM) is a global leader in wireless technology and semiconductors, specializing in the development and commercialization of foundational technologies for the mobile industry.
Over the past 52 weeks, the stock has gained 40.2%, reaching a high of $230.63 on June 18, 2024. However, QCOM is down about 20% from its recent highs, providing an opportunity to pick up shares on the dip.
The company's market cap stands at $174.2 billion with a forward P/E ratio of 15.55, and a P/E-to-growth ratio of 1.45. On this basis, QCOM looks like a relative value compared to some of its sector peers.
QCOM offers an attractive dividend yield of 2.18%, based on its quarterly payout of $0.85 per share. The company has consistently increased its dividend for 22 years, and doesn’t seem to be letting up anytime soon - making it a top dividend pick in the semiconductor industry, following Intel’s dividend suspension.
In fiscal Q3 2024, Qualcomm reported non-GAAP revenues of $9.4 billion and non-GAAP earnings per share of $2.33, which beat Wall Street's estimates. The company's chipset business generated $8.1 billion in revenue, reflecting sequential growth in the automotive and IoT segments, and continued traction of its Snapdragon mobile platforms.
The company recently announced the expansion of its ASCON Program in partnership with Instituto Crescer, aiming to close the digital divide by modernizing classrooms and enabling connected learning.
Analysts maintain a “moderate buy” rating on Qualcomm, with 17 out of 30 analysts suggesting a “strong buy,” 1 recommending a “moderate buy,” 11 advising a “hold,” and one voting for a “strong sell.” The mean target price for the stock is $213.18, representing a potential upside of 29.2% from the current price.
#3. Microchip Technology Inc. (MCHP)
Microchip Technology Inc. (MCHP) is a leading provider of smart, connected, and secure embedded control solutions. The company specializes in microcontroller, mixed-signal, analog, and Flash-IP integrated circuits and offers a diverse portfolio of products for various industries.
The stock’s performance over the past 52 weeks has been subpar, with MCHP down 8.58%. That includes its lackluster 2024 performance, down 14.3%.
Valued at $38.62 billion, the company's forward P/E ratio is 35.80, indicating a richer valuation than some of its peers. MCHP offers a dividend yield of 2.52%, with a quarterly payout of $0.45 per share. The company has consistently increased its dividend each year for over two decades, presenting a compelling opportunity for investors seeking a reliable combination of growth and income.
In its first quarter fiscal year 2025 earnings report, net sales of $1.241 billion were down 6.4% sequentially and 45.8% year-over-year. Microchip reported a GAAP gross profit of 59.4% and net income of $129.3 million, resulting in earnings per share of $0.24, which met the high end of their guidance range. Adjusted EPS of $0.53, meanwhile, beat Wall Street's estimates.
MCHP recently launched its dsPIC33A Core family of Digital Signal Controllers and introduced the PIC64 portfolio, expanding its computing range to meet the rising demands of embedded designs. These innovations aim to strengthen MCHP's position in the intelligent edge design market across various sectors.
Analysts maintain a “moderate buy” rating on MCHP, with 14 out of 22 analysts suggesting a “strong buy,” 1 recommending a “moderate buy,” and 7 advising a “hold.” The mean target price for the stock is $102.00, representing a potential upside of 25.2% from the current price.
The Best Chip Stocks to Buy for Dividends
In conclusion, if you're looking for solid semiconductor stocks that offer both growth potential and income in August 2024, Broadcom (AVGO), Qualcomm (QCOM), and Microchip Technology (MCHP) are your best bets. These three companies have proven track records, strong market positions, and attractive dividend yields, making them excellent alternatives to Intel (INTC) following its dividend suspension.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
